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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Elegant Hotels Group Plc | LSE:EHG | London | Ordinary Share | GB00BWXSNY91 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 110.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMEHG
RNS Number : 0752N
Elegant Hotels Group PLC
15 January 2019
15 January 2019
The information contained within this announcement is deemed by the Company to constitute inside information stipulated under the Market Abuse Regulation (EU) No. 596/2014. Upon the publication of this announcement via the Regulatory Information Service, this inside information is now considered to be in the public domain.
Elegant Hotels Group plc
Results for the Year Ended 30 September 2018
A year of good financial and operational progress
Elegant Hotels Group plc ("Elegant Hotels" or the "Company" or the "Group"), the owner and operator of seven upscale freehold hotels and a beachfront restaurant on the island of Barbados, today announces its audited results for the year ended 30 September 2018.
Financial Highlights
-- Revenue up 5.0% to $62.9m (2017: $59.9 million), reflecting the acquisition of Treasure Beach, the renovation of the House, and a continued strong performance from Waves
-- RevPAR (revenue per available room) broadly flat at $225 (2017: $227) -- ADR (average daily rates) up 2.0% to $361 (2017: $354) -- Adjusted EBITDA* up 10.6% to $19.7 million (2017: $17.8 million) -- Profit after tax up 3.5% to $9.5 million (2017: $9.2 million) -- Adjusted diluted EPS up 15.9% to 11.3 cents per share (2017: 9.8 cents per share) -- Implied Net Asset Value (NAV) of 200 cents per share (153 pence per share ) -- Year-end net debt of $72.2 million (2017: $73.1 million)
-- Proposed final dividend of 2.66 pence per share, resulting in a full year dividend of 4.0 pence per share
Operational Highlights
-- Opened Treasure Beach hotel, a 35-suite property, in December 2017, in line with the Group's expansion strategy, having refurbished, repositioned and repriced the property
-- Hodges Bay Resort in Antigua, operated by Elegant Hotels under management contract, opened subsequent to year end, in December 2018. This is the Group's first managed property outside Barbados
-- Refurbishment projects during the year have included: the public area renovations and new spa at The House; the addition of a rum vault to Colony Club; and renovations of some rooms and bathrooms at Turtle Beach and Crystal Cove, respectively
-- Established a centralised warehouse in order to increase operational efficiencies and take advantage of direct importation of food and beverage
* The Group uses adjusted EBITDA as a measure of performance as it better represents underlying performance. Adjusted EBITDA is earnings before interest, tax, depreciation, amortisation and one-off costs that are outside the ordinary course of business. Adjusted profit and adjusted EPS reflect the adjusted EBITDA figure. Comparative figures have been re-presented to include non-exceptional share-based payments in line with best practice.
based on an exchange rate of GBP1 : $1.30
Please note that due to rounding, numbers presented throughout this document may not add up precisely to the totals provided. Percentage changes are calculated on unrounded figures.
Commenting on the results, Sunil Chatrani, CEO of Elegant Hotels, said:
"We are pleased to have had a year of good financial and operational progress. The revenue increase reflects our strategy of delivering day-to-day excellence, developing our existing properties, and expanding our portfolio. The acquisition, refurbishment and subsequent relaunch of Treasure Beach in Barbados was a notable highlight, and since the year end Hodges Bay Resort & Spa in Antigua has opened under management contract.
Barbados continues to be a hugely attractive destination for visitors and holidaymakers from all over the world, and visitor numbers from the key markets of the UK and the US have continued to increase. While the market remains competitive, we firmly believe that we are well positioned due to the quality of our properties, our relentless focus on providing our guests with outstanding service, and the viability of our strategy. Our trading since the start of the new financial year has remained in line with market expectations, and our bookings are currently tracking ahead of the same period last year. While we are confident in our prospects for FY19, the Board continues to monitor macroeconomic conditions closely, which have the potential to reduce UK consumer discretionary spend."
Analyst conference call
A presentation and conference call for analysts and institutional investors with the Company's management team will take place at 9.00am (GMT) today, the details of which are as follows:
Standard International Access +44 (0) 20 3003 2666 Barbados Toll Free 1 877 562 2218 Password Elegant
For further information
Elegant Hotels Group plc Sunil Chatrani, Chief Executive Officer Jeff Singleton, Chief Financial Officer +1 246 432 6500 Liberum Capital Limited (NOMAD and Joint Broker) Clayton Bush / Chris Clarke / William Hall +44 (0) 203 100 2222 Zeus Capital Limited (Joint Broker) John Goold / Dominic King +44 (0) 203 829 5000 Powerscourt Rob Greening / Lisa Kavanagh / Isabelle Saber Email: eleganthotels@powerscourt-group.com +44 (0) 207 250 1446
NOTES TO EDITORS:
Elegant Hotels owns and operates seven luxury freehold hotels and a beachfront restaurant, Daphne's, on the island of Barbados. The Group's portfolio currently comprises 588 rooms, making it twice as large (by room number) as the closest competitor in the Barbados luxury hotel room market. Six of the seven properties are situated along the prestigious west coast of Barbados commonly known as the "Platinum Coast". The properties are all freehold, with a total aggregate plot size of approximately 23 acres and an aggregate beachfront of 2,600 feet.
In the year ended 30 September 2018, the Group achieved revenue of $63 million and EBITDA before non-recurring items of $20 million.
Together, the Group's seven existing hotels - Colony Club, Treasure Beach, Tamarind, The House, Crystal Cove, Waves Hotel & Spa and Turtle Beach - offer styles encompassing classic and contemporary, family-friendly and adults-only. The Group also has a management contract for Hodges Bay Resort in Antigua and a sales and marketing contract for The Landings Resort & Spa in St. Lucia.
The Group's strategy is to leverage its position as a leading hotel operator in Barbados and to expand both on Barbados as well as further into the Caribbean.
Investor website: http://www.eleganthotelsgroup.com
Consumer website: http://www.eleganthotels.com
BUSINESS REVIEW
Market overview
Barbados arrivals and competition
Recent data from the Barbados Tourism Marketing Inc shows that between January and October 2018, Barbados recorded over 540,000 visitors staying on the island, an increase of 3% on the prior period (2017: 6%). US visitors represented the strongest area of growth in this period with an increase in visitors of 9% (2017: 14%), accounting for circa 30% of all visitors to Barbados, while the 32% of visitors arriving from the UK grew by around 1% (2017: 1%). However, those UK visitors continued to spend more due to their longer average length of stay.
The increase in US arrivals was partly due to increased airlift (with additional flights from both Miami, Florida and Charlotte, North Carolina) providing even greater connectivity between Barbados and this strategically important market. In the UK, following the success of its additional direct daily flight from Heathrow over the 2017/18 peak season, Virgin has resumed this service for the 2018/19 peak season. In addition, a new air route from Panama commenced in July 2018.
The Sterling/USD exchange rate continues to affect the Group. Our rates are priced in USD while the majority of customers are from the UK (around 76% on a room night basis). The increased cost of a holiday to Barbados for our UK guests inevitably affects demand and also impacts the rates that the Group is able to achieve.
However, as outlined at our H1 2018 results in May, Barbados continues to be an attractive destination for UK travellers, and overall market conditions are stabilising. Its reputation as a safe country that is rarely affected by hurricanes allows it to be a year-round destination, as reflected by the solid H2 (low season) revenue performance for the Group.
Barbados' attractiveness does mean that we face competition on the island, especially in the all-inclusive segment, with new hotel openings continuing throughout 2018. This effect is partially mitigated by reduced room stock due to ongoing renovations as well as a slightly more difficult environment for new entrants due to the government changes outlined below. We continue to see a trend toward value accommodation, but the impact of this is being mitigated by increased airlift and visitor numbers to the island.
In response to this growing competition, we continue to enhance and differentiate our properties and services. In addition, the increase in airlift and general profile for Barbados that results from the new competitive offerings represents an opportunity for the Group.
Change in Barbados Government
On taking office in June 2018, the recently elected Barbados Labour Party reviewed the financial position of Barbados and determined that it was in a weaker position than previously believed. In order to improve the state of the country's finances, foreign reserves and debt position, the government prepared a 'mini-budget' which sought to raise US$0.6bn over three years.
Measures announced in the budget include an increase in taxes and levies which began to affect the Elegant Hotels Group from 1 July 2018. However, the Group has, with the help of its partners in the travel industry, passed the majority of these additional costs through to customers. Given the size of the new taxes and levies compared with the total cost of a holiday to Barbados, we believe the changes are at a level that the market will be able to absorb. We did not see a material impact of these changes on the results for the year to 30 September 2018 and , while we continue to monitor the situation closely, we do not currently believe that the outlook for the Group in 2019 and beyond will be materially affected.
As part of the measures, the Government also currently plans to increase VAT for the tourism industry from 7.5% to 15% from 1 January 2020. This increase is expected to be offset by the reduction in other levies currently in place such as the room night levy (a charge on each night of accommodation) and the Direct Tourism Services levy (a 2.5% charge on all tourism services save rooms). The Group continues to work with the Government to ensure any changes in taxes and levies are appropriate for the industry.
In the longer term, the Company is supportive of the Government's plans to invest both in the tourism industry and the infrastructure of the island.
Review of performance against strategy
Day-to-day operational excellence
Revenue - pricing and occupancy
Revenue for 2017/18 was $62.9 million, up 5% on the prior year (2017: $59.9 million). The increase was primarily driven by the addition of our recent acquisition of Treasure Beach from December 2017, our renovation of The House, and a continued strong performance from Waves.
Occupancy fell in the period by 1.6 percentage points to 62.3% from 63.9%. However, excluding Treasure Beach, which was opened in December 2017 and missed the peak tourist season, the Group's occupancy would have been largely consistent with the prior year.
ADR improved $7 or 2% in the period from $354 to $361. This was largely driven by The House, following its refurbishment, and Waves, as it continues to gain popularity. There is currently a trend towards our all-inclusive properties as guests, especially those from the UK, look to lock-in the cost of their holiday.
As in the prior year, the Group reviewed the pricing strategy for some of its properties in response to the weakening of Sterling. Rates were discounted on a targeted and tactical basis in certain cases in order to maximise occupancy based on the season.
Targeted promotions were used to boost occupancy during slower periods. Over the high demand periods, our specialist US-based revenue team continues to be disciplined and cautious with discounting, leveraging both the Group's excellent relationships with tour operators as well as its scale and its substantial share of available luxury rooms in Barbados.
Daphne's, our beachfront restaurant, had a mixed year in 2017/18. While performance was improved on the prior year when it was closed for a portion of the peak season due to renovations, the restaurant is underperforming due to increased competition. We are looking at new initiatives to improve its performance in 2018/19.
Target market and go-to-market strategy
We continue to focus on maintaining our strong relationships with tour operators, but are also increasing the direct business that we are attracting through our direct booking website. Reflecting this, the percentage of revenue from tour operators decreased from 80% to 78%. We are equally focussed on increasing our market penetration in North America, and have recently appointed a marketing agency in the US to help drive customers from this strategically important region. The percentage of customers from North America, based on room nights, increased to 20% from 18% in 2016/17.
In the longer term, we are looking to attract more of the millennial segment which includes families and "double income no kids", and for whom repeat visits are less common. These customers have been shown to value experiences and sustainability. Our property refurbishments therefore focus on appealing to this segment as well as our more established guest-type.
Product and service
In order to ensure all of our guests enjoy their stay at our hotels, we attach great importance to the training and development of staff. The Group has rigorous programmes in place which are key to improving its guest satisfaction scores, which in turn will encourage a high level of repeat business. During 2017/18, we delivered over 25,000 hours of training to our staff, compared to 18,000 hours in 2016/17. Our focus on training also creates confidence in our brand with travel agents and tour operators.
Cost control
Cost control continues to be a key focus for the Group. The increase and subsequent repeal of the National Social Responsibility Levy (or NSRL, a tax on most goods which was increased to 10% in the prior year and repealed in July 2018) has disrupted the costs of many goods. The majority of suppliers increased prices in excess of the NRSL increase, but these prices have yet to fall by the same level following the removal of the NSRL.
In response to the NSRL increase, we streamlined and centralised our functions in order to achieve economies of scale. We also commenced direct importation of goods in the financial year and established a centralised warehouse in order to deliver savings on a large proportion of food and beverage items. This programme has been a success and we are looking to increase its use in the 2018/19 financial year. As stated previously, the programme is expected to save $0.5m annually.
Existing portfolio enhancement
We have continued with our strategy of enhancing our portfolio by refurbishing, repositioning and repricing our hotels. These steps interplay to find the best combination of physical structure (refurbish), guest experience (reposition) and yield management (reprice). In addition to our regular capex spend of 3-4% of each hotel's revenue, we spent approximately $2m on special projects.
We started the year by completing the public area renovations and new spa at The House. These renovations enabled The House to deliver a 6% increase in EBITDA in the year. Additionally, we added a rum vault to Colony Club towards the end of the financial year. The rum vault is the first of its kind on the island of Barbados, featuring a collection of 150 rums from all over the world. It offers unique experiences such as rum pairings (with a dedicated rum sommelier) and multi-course dining options along with rum-themed mixology and cooking classes. In addition, we carried out renovations of some rooms and bathrooms at Turtle Beach and Crystal Cove, respectively.
Several properties have not been refurbished for a number of years. Historically, the Group has been able to significantly enhance profitability of properties as a result of refurbishment programmes. We are currently reviewing our refurbishment plans to focus capital expenditure on the areas providing the most compelling return on investment.
Expansion
We are delighted with the renovation of Treasure Beach which opened in December 2017. The 35 all-suite hotel is located next to Tamarind Hotel on the west coast and now gives the Group almost 300 meters of continuous beachfront on the prestigious 'Platinum Coast'.
In Treasure Beach, we saw an underperforming hotel that could be refurbished, repositioned and repriced in line with our enhancement strategy. Prior to opening, we conducted a full renovation of the property to create a modern hotel that is focussed on art and food. Unfortunately, Treasure Beach opened later than originally anticipated due in part to extreme weather events in Miami that delayed imports of materials. This meant that it missed the peak tourist season and has therefore contributed less in 2017/18 than was previously anticipated. However, we expect the property to perform well as it becomes more established.
Hodges Bay Resort & Spa, which we operate under management contract, opened in December 2018. This hotel is one of the best properties on the island of Antigua. As the Group's first full management contract, and its first operation outside Barbados, we intend to use this as a template for further expansion in the region. Our sales and marketing contract in St. Lucia continues to perform well.
There continue to be a number of compelling expansion opportunities in the Caribbean. However, the Board took the decision to strengthen our balance sheet during 2017/18 before expanding further. While further expansion in the Caribbean is key to the Group's strategy, the Group was mindful of the impact that macro-economic issues - such as the recent change in the Barbados Government and Brexit in the UK - could have on the Group. It is likely that this approach will continue into the current financial year.
Dividend
Elegant Hotels set out its dividend policy in the prior year. The Board is recommending a 2.66p final dividend in line with that policy. This, combined with the 1.33p interim dividend we paid in July, gives a full year dividend of 4.00p per share. The final dividend is subject to the approval of the Company's shareholders and will be paid on 8 March 2019 to shareholders who are on the register on 8 February 2019.
Board
During the year, David Adams stepped down from his role as Non-Executive Director and Chair of the Remuneration Committee. The Board is currently undertaking a search for an additional Independent Non-Executive Director with due regard to ensuring any new appointment contributes to the Board's skills, capabilities, experience and diversity.
As announced separately today, Jeff Singleton, Chief Financial Officer, has informed the Board of his intention to leave the Company. Jeff will remain with the Company for a period of time to ensure a smooth transition with his successor. As a result, Elegant Hotels has initiated a search for a new CFO and an appointment will be made in due course.
Outlook
Our trading since the start of the new financial year has remained in line with market expectations, and our bookings are currently tracking ahead of the same period last year. As a result, the Group remains confident in its prospects for FY19. However, the Board continues to monitor macroeconomic conditions closely, which have the potential to reduce UK consumer discretionary spend.
FINANCIAL REVIEW
Overview
Our financial performance in 2017/18 has remained solid as the market stabilised in H1 2018 and we delivered on the strong pipeline of bookings in the second half. There has been less pressure on our rates compared to the prior year, and we are starting to see the positive impacts of a number of our cost control and streamlining activities that we put in place over the last 18 months. However, the uncertainty around Brexit in the UK, our key market, continues to affect UK demand for luxury travel as well as the value of Sterling.
In the finance function, we continue to focus on supporting operations, managing risk and controlling costs, while enabling the Group's strategic goals of expansion and development.
Gross profit
Gross profit for the year increased by $1.8m to $37.3m (2017: $35.5m) reflecting the increase in revenue, while gross margin remained steady compared to the prior year at 59.3% (2017: 59.3%).
Gross margin had dropped by 0.8 percentage points year-on-year in H1 2018, partially due to the introduction of the National Social Responsibility Levy (NSRL) in Barbados. However, the commencement of direct importation through the Group's centralised warehouse in March 2018 and the repeal of the NSRL in July 2018 contributed to a 0.6 percentage point year-on-year recovery in H2 2018 gross margin. The direct importation programme, as stated previously, is expected to save $0.5m annually.
Selling, general and administrative expenses
Selling, general and administrative expenses before exceptional items increased slightly to $23.5m (2017: $22.9m), reflecting the addition of Treasure Beach, increased utility costs and increased depreciation offset by corporate and sales and marketing cost reductions.
Selling, general and administrative expenses before exceptional items decreased as a percentage of revenue year-on-year to 37% in FY 2018 from 38% in FY 2017. This partially reflected the impact of cost control measures and continued streamlining of functions within the Group.
Depreciation and amortisation increased from $4.1m to $4.6m primarily due to the opening of Treasure Beach in December 2017 and recent renovation projects.
Exceptional costs and bargain purchase gain
Exceptional costs were $0.8m in FY 2018 compared to $1.1m in the prior year. These costs largely arose in H1 2018 and reflected pre-opening costs for Treasure Beach and restructuring costs. In addition, the prior year included a credit of $0.6m from the reversal of share-based payment expense related to the share options issued on IPO which did not vest.
In the prior year, the Group also recognised a bargain purchase gain of $1.3m related to the acquisition of Treasure Beach (refer to note 4 for further details).
The Group presents non-statutory measures of adjusted EBITDA, adjusted profit before tax and adjusted EPS. These measures exclude exceptional costs and bargain purchase gains. These items are excluded as they do not reflect the underlying performance of the Group. The tables below set out the calculation of these measures.
From FY 2018 onwards, the Group no longer excludes non-exceptional share-based payment charges from these measures in line with best practice. The effect of this non-statutory presentational change on adjusted EBITDA and adjusted EBITDA margin is as follows:
Hot Features
Premium
FY 2018 FY 2017
Adj. EBITDA Adj. EBITDA Adj. EBITDA Adj. EBITDA
margin margin
------------ ------------ ------------ ------------
As originally presented 19.5 31.0% 18.1 30.2%
------------ ------------ ------------ ------------
Revised presentation 19.7 31.3% 17.8 29.7%
------------ ------------ ------------ ------------
Reconciliation of adjusted profit before tax and adjusted earnings per share
Reported Adjustments Adjusted Reported Adjustments* Adjusted*
2018 2018 2018 2017 2017 2017
$m $m $m $m $m $m
Gross profit 37.3 - 37.3 35.5 - 35.5
--------- ------------ --------- --------- ------------- ----------
Selling, general and
admin expenses (24.3) 0.8 (23.5) (22.7) (0.2) (22.9)
--------- ------------ --------- --------- ------------- ----------
Other operating income 1.2 - 1.2 1.0 - 1.0
--------- ------------ --------- --------- ------------- ----------
Operating profit 14.2 0.8 14.9 13.8 (0.2) 13.6
--------- ------------ --------- --------- ------------- ----------
Net finance expenses (3.6) - (3.6) (2.8) - (2.8)
--------- ------------ --------- --------- ------------- ----------
Profit before tax 10.6 0.8 11.4 11.0 (0.2) 10.8
--------- ------------ --------- --------- ------------- ----------
Taxation (1.1) (0.2) (1.3) (1.8) (0.3) (2.1)
--------- ------------ --------- --------- ------------- ----------
Profit after tax 9.5 0.6 10.1 9.2 (0.5) 8.7
--------- ------------ --------- --------- ------------- ----------
Weighted average number
of shares - basic
(m) 88.8 - 88.8 88.8 - 88.8
--------- ------------ --------- --------- ------------- ----------
Weighted average number
of shares - diluted
(m) 89.0 - 89.0 89.1 - 89.1
--------- ------------ --------- --------- ------------- ----------
Basic earnings per
share (cents) 10.7 0.6 11.4 10.3 (0.5) 9.8
--------- ------------ --------- --------- ------------- ----------
Diluted earnings per
share (cents) 10.7 0.6 11.3 10.3 (0.5) 9.8
--------- ------------ --------- --------- ------------- ----------
Reconciliation of adjusted EBITDA
Reported Adjustments Adjusted Reported Adjustments* Adjusted*
2018 2018 2018 2017 2017 2017
$m $m $m $m $m $m
Revenue 62.9 - 62.9 59.9 - 59.9
--------- ------------ --------- --------- ------------- ----------
Operating profit 14.2 0.8 14.9 13.8 (0.2) 13.6
--------- ------------ --------- --------- ------------- ----------
Depreciation and amortisation 4.6 - 4.6 4.1 - 4.1
--------- ------------ --------- --------- ------------- ----------
Impairment of short-term
investments - - - 0.0 - 0.0
--------- ------------ --------- --------- ------------- ----------
Loss on disposal of
assets 0.1 - 0.1 0.0 - 0.0
--------- ------------ --------- --------- ------------- ----------
EBITDA 18.9 0.8 19.7 18.0 (0.2) 17.8
--------- ------------ --------- --------- ------------- ----------
EBITDA margin 30.0% 31.3% 30.1% 29.7%
--------- ------------ --------- --------- ------------- ----------
Reconciliation of adjusted operating profit
2018 2017
$m $m
Operating profit 14.2 13.8
----- ------
Exceptional costs 0.8 1.1
----- ------
Bargain purchase gain - (1.3)
----- ------
Adjusted operating profit* 14.9 13.6
----- ------
* Comparative figures have been re-presented to include non-exceptional share-based payment charges as set out above.
Other operating income
Other operating income of $1.2m (2017: $1.0m) principally comprises gains on foreign exchange on converting US dollars into Barbados dollars.
Reported and adjusted EBITDA
Reconciliations of reported and adjusted EBITDA are set out in the table above. After adjusting for one-off items, adjusted EBITDA was $19.7m (2017: $17.8m), 11% higher than the prior period. Adjusted EBITDA margin was 1.6 percentage points higher than the prior period at 31.3%.
As well as the 5% increase in gross profit and the improvements to selling, general and admin expenses mentioned above, 2017/18 adjusted EBITDA benefited from the refurbishment of The House and an improved performance from Daphne's which were both closed for renovations during portions of 2016/17.
In addition, the change in presentation of non-exceptional share-based payments contributed $0.5m and 0.8 percentage points of this positive movement. This was due to a non-exceptional share-based payment credit of $0.2m in the current year, compared to a charge of $0.3m in the prior year.
Finance expenses
Interest on loans increased in the current year from $2.5m to $3.5m. This was a result of interest due on $8.4m of additional debt drawn down for the Treasure Beach acquisition in May 2017 as well as movements in the US LIBOR rate from circa 125 basis points at the start of the year to 230 basis points at the end. The Group continues to explore opportunities to convert variable interest rates to fixed rates in the future. Net finance expenses of $3.6m (2017: $2.8m) includes non-operating foreign exchange losses of $0.1m (2017: $0.3m loss).
Taxation
As a result of the change in Barbados Government, the Barbados corporate tax rate was raised to 30% from 25%, applicable retrospectively to the 2017/18 financial year. However, the recognition of prior year losses and increased capital allowances due to the construction of Treasure Beach contributed to an overall $0.7m reduction in taxation to $1.1m (2017: $1.8m).
The effective tax rate on adjusted profit before tax was 11.4% compared to 19.2% in the prior year, reflecting the above impacts.
Post year end, the Barbados corporate tax rate was reduced to rates of between 1% and 5.5%, applicable for the Group from 1 January 2019. No adjustments were made to the 2017/18 current tax or deferred tax balances.
Profit after tax and earnings per share
Profit after tax increased to $9.5m in 2017/18 from $9.2m in the prior year. This reflected increasing operating profit, with lower tax expenses offsetting higher interest expenses.
Basic and diluted EPS was 10.7 cents per share compared to 10.3 cents per share in 2016/17.
Adjusted profit after tax increased to $10.1 million from $8.7m in the prior year, while adjusted basic and diluted EPS increased from 9.8 cents per share to 11.4 and 11.3 cents per share respectively (re-presented to include non-exceptional share-based payments).
Net debt and net asset values
Net debt reduced to $72.2m at 30 September 2018 (2017: $73.1m), as set out in the table below. While the Group drew down $0.8m of its revolving facility and increased its drawn down overdraft facility by $6.2m, these movements were offset by total repayments of $6.6m against bank and vendor loans.
At 30 September 2018, the Group's revolving facility was almost fully drawn down and it had an additional undrawn overdraft facility available of $3.4m.
Based on adjusted EBITDA for the last 12 months, the Group has an adjusted EBITDA to net debt ratio of 3.7 times, reduced from 4.1 times at 30 September 2017. This internal KPI is used by the Board to assess the Group's levels of debt. The Group continues to comply with all covenants with comfortable headroom.
The Group's property portfolio was valued by CBRE at $249.5m as at 1 January 2018. This was a decrease of $17.7m (6.6%) from the previous valuations which totalled $267.2 million and were based on valuations provided by CBRE in 2015 (at the time of the IPO) and subsequent valuations by Terra Caribbean for Waves (2016) and Treasure Beach (2017).
Based on net debt of $72.2m at 30 September 2018, this equates to an implied net asset value (NAV) of approximately $177.3m (200 cents per share or 153 pence per share, based on an exchange rate of GBP1 : $1.30).
Despite the reduced property portfolio valuation due to the shift in the market affecting the cash flow valuation of the properties, in the Directors' opinion and based on internal impairment testing, asset values remain significantly in excess of carrying values and no impairments are required.
Reconciliation of net debt and net asset value
2018 2017
$m $m
Term loan (due 2020) (62.4) (67.9)
------- -------
Revolving facility (5.0) (4.8)
------- -------
Waves vendor loan (0.5) (1.0)
------- -------
Total loans and borrowings (67.9) (73.7)
------- -------
Bank overdraft (6.6) (0.4)
------- -------
Cash and cash equivalents 2.4 1.0
------- -------
Net debt (72.2) (73.1)
------- -------
Property value 249.5 267.2
------- -------
Net asset value 177.3 194.1
------- -------
Cash flow
The Group's free cash flow (defined as cash flow from operations less capital expenditure) increased to $7.8m for FY 2018 (2017: $6.9m).
The increase reflects more normalised cash tax payments ($1.7m compared to $2.5m) following the introduction of payments on account for Barbados tax expenses in the prior year, partially offset by a $0.6m increase in capital expenditure ($6.2m compared to $5.6m) largely due to the completion of the Treasure Beach renovations.
Working capital outflow increased to $2.7m from $1.8m, largely reflecting a decrease in trade payables relating to the timing of payments and increased VAT receivables, which offset increased cash flows from operating activities.
Dividend payments were $4.2m lower than the prior year as a result of the change in dividend policy, partially offsetting $2.2m higher interest and net debt repayments and the impact of the $5.0m revolver drawdown in the prior year.
Net cash outflow increased to $4.9m in 2017/18 from $3.1m, leading to cash and cash equivalents, net of drawn overdraft, decreasing from $0.6m to a net overdraft position of $4.3m at 30 September 2018.
While the Group's cash position has declined in the short term, this has primarily been the result of financing the renovations and pre-opening activities of Treasure Beach through operating cash flows and the cash flows related to debt service. In the 2018/19 financial year, the Group expects to become cash flow positive and commence a refinancing exercise with a view to reducing the amortisation burden of the secured loans.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended Year ended
30 September 30 September
2018 2017
Note $'000 $'000
Revenue 5 62,870 59,872
------ -------------- --------------
Cost of sales (25,581) (24,378)
------ -------------- --------------
Gross profit 37,289 35,494
------ -------------- --------------
Selling, general and administrative expenses
------ -------------- --------------
Before exceptional items and bargain purchase
gain (23,537) (22,900)
------ -------------- --------------
Exceptional items 9 (761) (1,054)
------ -------------- --------------
Bargain purchase gain 4, 6 - 1,259
------ -------------- --------------
(24,298) (22,695)
------ -------------- --------------
Other operating income 1,175 986
------ -------------- --------------
Operating profit 14,166 13,785
------ -------------- --------------
Finance income 10 29 12
------ -------------- --------------
Finance expenses 10 (3,581) (2,810)
------ -------------- --------------
Finance expenses - net (3,552) (2,798)
------ -------------- --------------
Profit before taxation 6 10,614 10,987
------ -------------- --------------
Taxation 11 (1,103) (1,799)
------ -------------- --------------
Profit for the year and total comprehensive
income attributable to equity holders of
the parent company 9,511 9,188
------ -------------- --------------
Earnings per share
------ -------------- --------------
Basic earnings per share (cents) 12 10.7 10.3
------ -------------- --------------
Diluted earnings per share (cents) 12 10.7 10.3
------ -------------- --------------
Other comprehensive income
------ -------------- --------------
Items that may be subsequently reclassified
to profit or loss
------ -------------- --------------
Currency translation differences - (112)
------ -------------- --------------
Total comprehensive income for the year 9,511 9,076
------ -------------- --------------
Non-GAAP measures
------ -------------- --------------
EBITDA and Adjusted EBITDA
------ -------------- --------------
Operating profit 14,166 13,785
------ -------------- --------------
Loss on disposal of assets 125 49
------ -------------- --------------
Depreciation and amortisation 6 4,630 4,135
------ -------------- --------------
Impairment of short-term investments 18 - 34
------ -------------- --------------
EBITDA 18,921 18,003
------ -------------- --------------
Exceptional items 9 761 1,054
------ -------------- --------------
Bargain purchase gain 4, 6 - (1,259)
------ -------------- --------------
Adjusted EBITDA* 19,682 17,798
------ -------------- --------------
Adjusted EBITDA margin* 31.3% 29.7%
------ -------------- --------------
* Comparative adjusted EBITDA figures have been re-presented to include non-exceptional share-based payment charges.
All amounts relate to continuing activities.
CONSOLIDATED AND COMPANY STATEMENTS OF FINANCIAL POSITION
Group Group Company Company
2018 2017 2018 2017
Note $'000 $'000 $'000 $'000
Non-current assets
------ -------- -------- -------- ---------
Investments in subsidiary undertakings 30 - - 100,061 104,639
------ -------- -------- -------- ---------
Property, plant and equipment 13 184,666 183,714 - -
------ -------- -------- -------- ---------
Intangible assets 14 443 114 - -
------ -------- -------- -------- ---------
Deferred tax assets 15 5,350 4,938 - -
------ -------- -------- -------- ---------
190,459 188,766 100,061 104,639
------ -------- -------- -------- ---------
Current assets
------ -------- -------- -------- ---------
Inventories 16 3,133 3,062 - -
------ -------- -------- -------- ---------
Trade and other receivables 17 6,210 4,668 397 42
------ -------- -------- -------- ---------
Short-term investments 18 33 33 - -
------ -------- -------- -------- ---------
Cash and cash equivalents 19 2,357 996 184 -
------ -------- -------- -------- ---------
11,733 8,759 581 42
------ -------- -------- -------- ---------
Total assets 202,192 197,525 100,642 104,681
------ -------- -------- -------- ---------
Current liabilities
------ -------- -------- -------- ---------
Loans and borrowings 20 7,542 7,095 - -
------ -------- -------- -------- ---------
Bank overdraft 19 6,629 411 - -
------ -------- -------- -------- ---------
Trade and other payables 21 6,256 7,081 13 43
------ -------- -------- -------- ---------
Provisions 22 281 615 - -
------ -------- -------- -------- ---------
Tax payable 118 892 - -
------ -------- -------- -------- ---------
20,826 16,094 13 43
------ -------- -------- -------- ---------
Non-current liabilities
------ -------- -------- -------- ---------
Loans and borrowings 20 60,350 66,602 - -
------ -------- -------- -------- ---------
Deferred tax liabilities 15 5,646 5,047 - -
------ -------- -------- -------- ---------
Total liabilities 86,822 87,743 13 43
------ -------- -------- -------- ---------
Net assets 115,370 109,782 100,629 104,638
------ -------- -------- -------- ---------
Equity attributable to equity
holders of the parent
------ -------- -------- -------- ---------
Share capital 24 1,367 1,367 1,367 1,367
------ -------- -------- -------- ---------
Merger reserve 24 43,497 43,497 86,208 86,208
------ -------- -------- -------- ---------
Share-based payment reserve 355 556 355 556
------ -------- -------- -------- ---------
Retained earnings at the beginning
of the year 64,362 63,191 16,507 36,337
------ -------- -------- -------- ---------
Profit/(loss) for the year
attributable to the owners 9,511 9,188 (86) 142
------ -------- -------- -------- ---------
Other changes in retained earnings (3,722) (8,017) (3,722) (19,972)
------ -------- -------- -------- ---------
Retained earnings 70,151 64,362 12,699 16,507
------ -------- -------- -------- ---------
Total equity 115,370 109,782 100,629 104,638
------ -------- -------- -------- ---------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share-based
payment
Share Merger reserve Retained Total
capital reserve $'000 earnings equity
Note $'000 $'000 $'000 $'000
Balance at 1 October 2016 1,367 43,497 909 63,191 108,964
------- ---------- ---------- ------------ ----------- ---------
Profit for the year - - - 9,188 9,188
------- ---------- ---------- ------------ ----------- ---------
Foreign exchange - - - (112) (112)
------- ---------- ---------- ------------ ----------- ---------
Total comprehensive income
for the year - - - 9,076 9,076
------- ---------- ---------- ------------ ----------- ---------
Dividends - - - (7,905) (7,905)
------- ---------- ---------- ------------ ----------- ---------
Share-based payments 23 - - (353) - (353)
------- ---------- ---------- ------------ ----------- ---------
Total transactions with owners
recognised directly in equity - - (353) (7,905) (8,258)
------- ---------- ---------- ------------ ----------- ---------
Balance at 30 September 2017 1,367 43,497 556 64,362 109,782
------- ---------- ---------- ------------ ----------- ---------
Profit for the year - - - 9,511 9,511
------- ---------- ---------- ------------ ----------- ---------
Total comprehensive income
for the year - - - 9,511 9,511
------- ---------- ---------- ------------ ----------- ---------
Dividends - - - (3,722) (3,722)
------- ---------- ---------- ------------ ----------- ---------
Share-based payments 23 - - (201) - (201)
------- ---------- ---------- ------------ ----------- ---------
Total transactions with owners
recognised directly in equity - - (201) (3,722) (3,923)
------- ---------- ---------- ------------ ----------- ---------
Balance at 30 September 2018 1,367 43,497 355 70,151 115,370
------- ---------- ---------- ------------ ----------- ---------
COMPANY STATEMENT OF CHANGES IN EQUITY
Share-based
payment
Share Merger reserve Retained
capital reserve $'000 earnings Total equity
Note $'000 $'000 $'000 $'000
Balance at 1 October 2016 1,367 86,208 909 36,337 124,821
------- ---------- ---------- ------------ ----------- ---------------
Profit for the year - - - 142 142
------- ---------- ---------- ------------ ----------- ---------------
Currency translation differences - - - (12,067) (12,067)
------- ---------- ---------- ------------ ----------- ---------------
Total comprehensive income
for the year - - - (11,925) (11,925)
------- ---------- ---------- ------------ ----------- ---------------
Dividends - - - (7,905) (7,905)
------- ---------- ---------- ------------ ----------- ---------------
Share-based payments 23 - - (353) - (353)
------- ---------- ---------- ------------ ----------- ---------------
Total transactions with
owners recognised directly
in equity - - (353) (7,905) (8,258)
------- ---------- ---------- ------------ ----------- ---------------
Balance at 30 September
2017 1,367 86,208 556 16,507 104,638
------- ---------- ---------- ------------ ----------- ---------------
Loss for the year - - - (86) (86)
------- ---------- ---------- ------------ ----------- ---------------
Total comprehensive loss
for the year - - - (86) (86)
------- ---------- ---------- ------------ ----------- ---------------
Dividends - - - (3,722) (3,722)
------- ---------- ---------- ------------ ----------- ---------------
Share-based payments 23 - - (201) - (201)
------- ---------- ---------- ------------ ----------- ---------------
Total transactions with
owners recognised directly
in equity - - (201) (3,722) (3,923)
------- ---------- ---------- ------------ ----------- ---------------
Balance at 30 September
2018 1,367 86,208 355 12,699 100,629
------- ---------- ---------- ------------ ----------- ---------------
CONSOLIDATED AND COMPANY STATEMENTS OF CASH FLOWS
Group Group Company Company
2018 2017 2018 2017
$'000 $'000 $'000 $'000
Cash flows from operating activities
--------- --------- -------- -------------
Profit/(loss) after taxation 9,511 9,188 (86) 142
--------- --------- -------- -------------
Depreciation and amortisation 4,630 4,135 - -
--------- --------- -------- -------------
Impairment of short-term investment - 34 - -
--------- --------- -------- -------------
Income tax expense 1,103 1,799 - -
--------- --------- -------- -------------
Net finance expense 3,581 2,810 - 283
--------- --------- -------- -------------
Bargain purchase gain - (1,259) - -
--------- --------- -------- -------------
Loss on disposal of assets 125 49 - -
--------- --------- -------- -------------
Share-based payments (201) (353) (201) (353)
--------- --------- -------- -------------
(Decrease)/increase in provisions (334) 354 - -
--------- --------- -------- -------------
Operating profit/(loss) before working
capital changes 18,415 16,757 (287) 72
--------- --------- -------- -------------
Increase in inventories (71) (112) - -
--------- --------- -------- -------------
Increase in trade and other receivables (1,540) (1,237) (355) (24)
--------- --------- -------- -------------
Decrease in trade and other payables (1,116) (426) (30) (892)
--------- --------- -------- -------------
Increase in due to related parties - - 5,176 9,438
--------- --------- -------- -------------
Increase in due from related parties - - (598) (1,017)
--------- --------- -------- -------------
Taxation paid (1,688) (2,489) - -
--------- --------- -------- -------------
Net cash generated from operating
activities 14,000 12,493 3,906 7,577
--------- --------- -------- -------------
Cash flows from investing activities
--------- --------- -------- -------------
Purchase of property, plant and equipment (5,764) (5,440) - -
--------- --------- -------- -------------
Purchase of intangible assets (397) (137) - -
--------- --------- -------- -------------
Proceeds from disposal of equipment 73 212 - -
--------- --------- -------- -------------
Acquisition of subsidiary, net of - (7,766) - -
cash acquired
--------- --------- -------- -------------
Net cash used in investing activities (6,088) (13,131) - -
--------- --------- -------- -------------
Cash flows from financing activities
--------- --------- -------- -------------
Receipt of bank loans 800 13,316 - -
--------- --------- -------- -------------
Repayment of bank borrowings (6,105) (4,120) - -
--------- --------- -------- -------------
Repayment of third party loans (500) (1,000) - -
--------- --------- -------- -------------
Dividends paid (3,722) (7,905) (3,722) (7,905)
--------- --------- -------- -------------
Interest paid (3,242) (2,489) - -
--------- --------- -------- -------------
Loss on forward contract settlement - (283) - (283)
--------- --------- -------- -------------
Net cash used in financing activities (12,769) (2,481) (3,722) (8,188)
--------- --------- -------- -------------
Net (decrease)/increase in cash and
cash equivalents (4,857) (3,119) 184 (611)
--------- --------- -------- -------------
Cash and cash equivalents at the
beginning of the year (net of overdraft) 585 3,704 - 611
--------- --------- -------- -------------
Cash and cash equivalents at the
end of the year (net of overdraft) (4,272) 585 184 -
--------- --------- -------- -------------
Bank overdraft 6,629 411 - -
--------- --------- -------- -------------
Cash and cash equivalents at the
end of the year 2,357 996 184 -
--------- --------- -------- -------------
NOTES TO THE FINANCIAL STATEMENTS
1. GENERAL INFORMATION
Elegant Hotels Group plc ("Elegant Hotels" or the "Company") is a public limited company incorporated in the UK and listed on the Alternative Investment Market (AIM) of the London Stock Exchange. The address of the registered office is 10 Norwich Street, London, EC4A 1BD.
The principal activity of the Company and its subsidiaries (collectively the "Group") is the ownership and operation of hotels and restaurants in the Caribbean, principally on the island of Barbados. During the prior year, the Group acquired Treasure Beach, a 35 suite hotel in Barbados.
2. SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these Consolidated and Company Financial Statements are set out below. They have been consistently applied in the financial years ending 30 September 2018 (2017/18 financial year) and 30 September 2017 (2016/17 financial year) unless otherwise stated.
2.1. BASIS OF PREPARATION
The financial statements of Elegant Hotels Group plc and the consolidated financial statements for the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and in accordance with the Companies Act 2006 applicable to companies reporting under IFRS. The Company has taken advantage of the exemption provided under Section 408 of the Companies Act 2006 not to publish its individual Income Statement and related notes.
The Company and Consolidated Financial Statements are prepared on the historical cost basis, modified by the revaluation of certain assets and liabilities at amortised cost.
The functional currency of the Company is United States dollars ($). The dominant currency of the trading entities is United States dollars. The Company and Group presents the financial statements in United States dollars, and all information is stated in United States dollars unless otherwise indicated. All amounts have been rounded to the nearest thousand ('000), unless otherwise indicated.
2.1.1. GOING CONCERN
Notwithstanding net current liabilities of $9.1 million as at 30 September 2018, and cash outflows for the year of $4.9 million, the financial statements have been prepared on a going concern basis which the Directors consider to be appropriate for the following reasons.
The Group meets its day-to-day working capital requirements with the assistance of its bank facilities which include term loans, revolving credit facilities and an overdraft facility. These facilities were renewed on 26 May 2015 and expire in May 2020. In the 2018/19 financial year, the Group expects to commence a refinancing exercise with a view to reducing the amortisation on the secured loans. Initial discussions with the Group's finance partners indicate that the loans will be renewed at similar commercial terms to those currently in place.
In confirming the appropriateness of the going concern basis, the Group prepares forecasts and projections which take account of possible changes in trading performance, cost of debt and exchange rates. While the Group's cash position has declined in the short term, this has primarily been the result of financing the renovations and pre-opening activities of Treasure Beach through operating cash flows and the cash flows related to debt service. The Group continuously monitors liquidity and actively manages working capital, capital expenditure and debt servicing requirements to provide sufficient headroom in available facilities.
The Group regularly forecasts short, medium and long-term cash flows in order to ensure the Group can continue as a going concern. These forecasts are sensitised for possible changes in trading performance, cost of debt and exchange rates. Were the performance of the Group to fall below expectations, the Group is able to manage working capital and reduce expenditure on capital items and dividends.
These projections demonstrate that, subject to any significant changes to the Group's business or economic environment, the Group should be able to operate within the level of its current facilities, meet future debt repayments and continue to comply with its banking covenants for at least the foreseeable future. As such, the Directors consider it appropriate to adopt the going concern basis in preparing the Group financial statements.
2.1.2. CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES
No new standards, interpretations or amendments effective for the first time to the year ended 30 September 2018 have had a material impact on the consolidated results or financial position of the Group or Company.
Management is assessing the following relevant standards, interpretations and amendments, which are not yet effective or adopted, for the impact on the Group:
-- IFRS 15 Revenue from contracts with Customers (effective date for accounting periods from 1 January 2018).
Management has reviewed IFRS 15 and has considered specifically the treatment of service charge in accordance with the revised standard.
Currently, service charge collected as part of revenue and paid to employees is not recorded as revenue. After analysing the treatment of service charge in accordance with IFRS 15, the Group has concluded that amounts collected as service charge should be recognised as revenue as service charge is not considered to be a separately identifiable performance obligation. This is because a customer cannot benefit from it separately. It is an integral component of each of the relevant performance obligations provided.
In recognising service charge as revenue, a corresponding expense is recognised in salaries and wages.
The Group will adopt IFRS 15 for the year ended 30 September 2019, and expects to apply the cumulative effect method for transition. Full disclosures under IFRS 15, including the cumulative transition effect at 1 October 2018, will be provided in the 2018/19 financial statements.
For information, if IFRS 15 had been adopted for these financial statements, the current year changes to revenue and salaries and wages would have been as follows:
2018 in
accordance
with IFRS
15
IFRS 15 $'000
adjustment
2018 $'000
$'000
Accommodation 47,604 4,789 52,393
-------- ------------- ------------
Food and beverage 14,060 1,415 15,475
-------- ------------- ------------
Other services 1,206 - 1,206
-------- ------------- ------------
Revenue 62,870 6,204 69,074
-------- ------------- ------------
Other operating income 1,175 (125) 1,050
-------- ------------- ------------
Salaries and wages 19,878 6,079 25,957
-------- ------------- ------------
-- IFRS 9 Financial Instruments (effective date for accounting periods from 1 January 2018). Management has reviewed its financial instruments in line with IFRS 9 and does not expect the new standard to have a material impact on the Group.
The Group currently recognises all financial assets as loans and receivables, initially recognised at fair value plus transaction costs and then carried at amortised cost. As the objective of the Group's business model in relation to these financial assets is to collect contractual cash flows, these assets will continue to be recognised as basic loans and receivables at fair value and carried at amortised cost under IFRS 9. No short-term receivables have a significant financing component and any differences between fair value and transaction price are immaterial.
All of the Group's trade receivables are due within two months. A valuation allowance is assessed at each reporting period for the small proportion of receivables that are past due. In the current and prior year, the Group did not use any valuation allowances. The Group only has less than $0.1m in short-term investments and no other financial assets. Therefore, the Group does not expect any material change from the IFRS 9 requirements to recognise expected credit losses on trade and other receivables.
-- IFRS 16 Leases (effective date for accounting periods from 1 January 2019). Management has reviewed IFRS 16 and does not believe it will have a material impact on the Group.
The Group owns all of its properties and has very few arrangements that meet the definition of a lease per IFRS 16. The Group has leases for office space in the US and a warehouse in Barbados. The combined payments under these leases is less than $0.1m annually. Further, the Group has leases in respect of office equipment. The payments under these leases are less than $0.1m annually. The Group does not currently have any additional contracts that would meet the definition of a lease per IFRS 16.
-- IFRIC 23 Uncertainty over Income Tax Treatments (effective date for accounting periods from 1 January 2019). Management has reviewed IFRIC 23 and does not believe it will have a material impact on the Group. The Group retains the services of an external tax advisor, who reviews the deferred tax calculation in accordance with IAS 12.
-- Annual improvements to IFRSs (2015-2017 Cycle) - Minor amendments to various accounting standards, effective for periods beginning on or after 1 January 2019 onwards. None of these amendments are expected to have a material impact on the Group.
2.2. BASIS OF CONSOLIDATION
SUBSIDIARIES
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The acquisition date is the date on which control is transferred to the acquirer. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.
ACQUISITIONS
The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group.
The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest's proportionate share of the recognised amounts of acquiree's identifiable net assets. Acquisition related costs are expensed as incurred.
INTRA-GROUP
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated. Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group's interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.
In the Company financial statements, all investments in subsidiaries are carried at cost less impairment.
2.3. FOREIGN CURRENCY TRANSACTIONS AND BALANCES
In preparing the financial statements of the individual companies, transactions in currencies other than the entity's functional currency (foreign currencies) are recognised at the rates of exchange prevailing on the dates of the transactions. At each reporting date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations are translated at exchange rates prevailing on the reporting date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income.
Exchange differences are recognised in profit or loss in the period in which they arise except for exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are recognised initially in other comprehensive income and reclassified from equity to profit or loss on disposal or partial disposal of the net investment.
In prior years, the Group had entered into forward US dollar/Sterling forward exchange contracts to secure the amount of approved dividends. No forward exchange contracts were in place during 2017/18, and the Group does not enter into other forward or similar contracts.
2.4. REVENUE RECOGNITION
Revenue for the Group is measured at the fair value of the consideration received or receivable, net of discounts, value added taxes and service charges. The Group recognises revenue for services provided when the amount of revenue can be reliably measured and it is probable that future economic benefits will flow to the entity.
Revenue arising from the provision of hotel accommodation, restaurant and bar services and activities is recognised when the service is provided or the products are delivered to the customer.
All deposits for accommodation and similar income which are received in advance of the related performance are classified as deferred revenue and shown as a liability until delivery of the service.
2.5. FINANCE INCOME AND EXPENSE
Finance income is recognised in profit and loss on an accruals basis. Finance expense is recognised in profit or loss using the effective interest method.
2.6. EXCEPTIONAL ITEMS
Exceptional items are items that are, in the judgment of management, material due to their size or nature, or non- recurring items that are considered exceptional. They are disclosed separately in the financial statements where it is necessary to do so to provide further understanding of the financial performance of the Group.
2.7. EMPLOYEE BENEFITS
Short-term employee benefits are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the Elegant Hotels Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
Contributions to defined contribution pension schemes are charged to the Consolidated Statement of Comprehensive Income in the year to which the employee's services relate.
2.8. SEGMENT REPORTING
An operating segment is a component of the Elegant Hotels Group that engages in business activities from which it may earn revenues and incur expenses; whose operating results are regularly reviewed by the entity's Chief Operating Decision Maker (CODM) to make decisions about resources to be allocated to the segment and assess its performance; and for which discrete financial information is available.
All revenue and operating profit is derived from the main activity of the Group. Each hotel is considered to be a separate operating segment of the Group based on the information provided to the CODM (considered to be the Board of Directors). These segments are aggregated for the purposes of disclosure as the aggregation criteria of IFRS 8 Operating Segments are considered to be met. The Directors believe the aggregation criteria is met due to the similar economic characteristics of the hotels which all operate on the island of Barbados.
2.9. SHARE-BASED PAYMENTS
Employees (and Executive Directors) receive remuneration in the form of equity-settled share-based payments, whereby employees render services in exchange for rights over shares (share options). The fair value of the employee services received in exchange for the grant of share options is recognised as an expense. The total amount to be expensed on a straight-line basis over the vesting period is determined by reference to the fair value of the share options determined at the grant date, excluding the impact of any non-market based vesting conditions (for example, continuation of employment and performance targets).
Non-market based vesting conditions are included in assumptions about the number of options that are expected to become exercisable or the number of shares that the employee will ultimately receive. This estimate is revised at each reporting date to allow for forecasted employee attrition and the difference is charged or credited to the Statement of Comprehensive Income, with a corresponding adjustment to reserves.
2.10. TAXATION
Income tax on the profit or loss for the period comprises current and deferred tax. Income tax is recognised in the statement of profit or loss except to the extent that it relates to items recognised directly in equity or other comprehensive income, where it is recognised in other comprehensive income or directly in equity, respectively.
Current tax for the year is the expected tax payable on the taxable income for the year, using the best estimate of the weighted average annual income tax rate expected for the full financial year.
Deferred tax is recognised using the liability method in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets or liabilities, using the tax rates enacted or substantially enacted at the reporting date.
Deferred income tax is not provided on the initial recognition of an asset or liability in a transaction, other than a business combination, if at the time of the transaction there is no effect on either accounting or taxable profit or loss.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the unused tax losses and credits can be utilised. Deferred tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that the related tax benefits will be realised.
Deferred tax assets and liabilities are offset only when there is a legally enforceable right to offset current tax assets against current tax liabilities and when they relate to income tax levied by the same taxation authority and the Group intends to settle current tax assets and liabilities on a net basis.
2.11. INVENTORIES
Inventories are valued at the lower of cost and net realisable value on a first in, first out basis. The cost is determined using a weighted average basis. Net realisable value for inventories held for sale is the estimated selling price in the normal course of business less the estimated costs necessary to make the sale.
The Group records certain materials and supplies that are consumed in delivery of hotel and restaurant services as base stock. These items include linen (sheets, pillows, duvets, bed skirts), crockery (plates, bowls, cups, saucers), cutlery (knives, forks, spoons), glassware and stainless steel items (teapots, serving platters).
Net realisable value for inventories held for consumption in the provision of services is equivalent to cost.
2.12. PROPERTY, PLANT AND EQUIPMENT
Items of property, plant and equipment are initially recognised at cost, including directly attributable costs, and subsequently stated at historical cost less depreciation and impairment.
Land is not depreciated.
Depreciation is calculated on other items of property, plant and equipment on a straight line basis over the expected useful economic life of the asset as follows:
Buildings - 30 to 50 years. Furniture, fixtures and fittings - 2 to 15 years. Motor vehicles - 7 years.
Depreciation on assets under construction does not commence until they are complete and available for use. These assets represent "fit-outs".
2.13. INTANGIBLE ASSETS
The Group records intangible assets relating to software, including commercial website and internal systems. These assets are initially recorded at cost. The class of software assets has been assessed as finite, having a useful life of three to five years. The cost of the software assets is amortised on a straight line basis over this period. The carrying value and the amortisation period is reviewed annually.
Costs associated with maintaining software are recognised as an expense when incurred.
2.14. IMPAIRMENT OF NON-FINANCIAL ASSETS
Assets that have indefinite useful lives are not subject to amortisation and are tested annually for impairment. All other non-current assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).
The Group determines any impairment by comparing the carrying values of each of the Group's assets (or the cash- generating unit to which it belongs) to their recoverable amounts, which is the higher of the asset's fair value less costs to sell and its value in use. Fair value represents market value in an active market. Value in use is determined by discounting future cash flows arising from the asset. Future cash flows are determined with reference to the Group's own projections using pre-tax discount rates.
2.15. LEASED ASSETS
Where substantially all of the risks and rewards incidental to ownership are not transferred to the Group (an "operating lease"), the total rentals payable under the lease are charged to the Consolidated Statement of Comprehensive Income on a straight-line basis over the lease term. The aggregate benefit of lease incentives is recognised as a reduction of the rental expense over the lease term.
2.16. FINANCIAL ASSETS
The Group classifies its existing financial assets, including cash and cash equivalents, as loans and receivables. The classification depends on the purpose for which the assets are held.
Management determines the classification of financial assets at initial recognition and re-evaluates this designation at every reporting date.
2.16.1. LOANS AND RECEIVABLES
These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of services to customers (e.g. trade receivables), but also incorporate other types of contractual monetary asset.
The Group's loans and receivables comprise cash and cash equivalents, short-term deposits, and accounts and other receivables.
They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. Accounts receivable are presented in current assets in the Statement of Financial Position, except for those with maturities greater than one year after the reporting date, which are presented as non-current assets.
Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the terms receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable.
The Company advances loans to its subsidiary undertakings which are accounted for as part of its net investment in those operations. These loans are repayable on demand and are stated at amortised cost less allowance for impairment.
Cash and cash equivalents comprise cash balances and fixed deposits with original maturity dates of 90 days or less. The carrying value of cash and cash equivalents in the Statement of Financial Position is considered to be fair value.
2.17. FINANCIAL LIABILITIES
All financial liabilities are recognised initially at fair value, net of transaction costs incurred, and subsequently carried at amortised cost. The Group's financial liabilities include bank and third-party loans, the bank overdraft and trade and other payables.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan and amortised to the profit and loss over the life of the loan.
All borrowing costs are recognised in profit or loss in the period in which they are incurred.
2.18. PROVISIONS
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
The Group's provisions are made up of legal amounts relating to specific legal claims, employee benefits, specifically annual leave, and sales incentive schemes. The timing of the utilisation of the provision is uncertain and is largely outside of the Group's control.
2.19. SHARE CAPITAL
Financial instruments issued by the Group are treated as equity only to the extent that they do not meet the definition of a financial liability. The Group's ordinary shares are classified as equity.
2.20. DIVID DISTRIBUTION
Final dividend distributions to the Company's shareholders are recognised as a liability in the Group's financial statements in the period in which the dividends are approved by the Company's shareholders. Interim dividends are recognised when paid. Unpaid dividends that do not meet these criteria are disclosed in the notes to the financial statements.
3. ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expense. Actual results may differ from these estimates.
Judgements made by the Directors in the application of these accounting policies that have significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are:
Property, plant and equipment - Judgement is required in determining whether the carrying values of the assets have any indication of impairment, as outlined further in note 2.13.
Acquisition accounting - The classification of an acquisition as a business combination and recognition of identifiable assets and liabilities are key areas of both judgement and estimation.
4. BUSINESS COMBINATIONS
ACQUISITION OF TREASURE BEACH HOTEL
On 5 May 2017, the Group purchased 100% of the share capital of Treasure Beach Limited for $7.9 million. Treasure Beach Limited is a Barbados externally registered company which owns the business and property of Treasure Beach Hotel, located in Paynes Bay, St. James, Barbados. The Group purchased Treasure Beach to further expand within Barbados. It has refurbished the property as an adults-only European plan offering.
Treasure Beach Limited's property was independently valued on acquisition at $9.7 million by Terra Caribbean. In addition, a deferred tax liability of $0.6 million was recognised on the value of the buildings. The difference of approximately $1.3 million between the total consideration and the fair value of the assets and liabilities is shown as a bargain purchase gain on acquisition in the Consolidated Statement of Comprehensive Income. The bargain purchase gain resulted from the property being for sale for a number of years. The property was loss making prior to acquisition and the Directors believed the property was not operating to its full potential. The Directors reviewed the purchased assets for unrecognised intangible assets but could not identify any.
The acquisition accounting policies are consistent with those of the Group.
In the period immediately following the date of acquisition in May 2017 to July 2017, the operation of the hotel was under the existing brand and losses of $0.1 million were recognised as exceptional expenses. In the year-ended 30 September 2018, a further $0.6 million of pre-opening costs were recognised as exceptional expenses relating primarily to operating, supplies and equipment and labour (2017: $0.2 million). The property closed for renovations and reopened in December 2017 under the Elegant Hotels brand.
Acquisition related costs
The Group incurred acquisition related costs of $0.4 million comprising legal, professional and due diligence fees, stamp duty and renovation/refurbishment project management fees. These costs have been included as exceptional administrative expenses in the Consolidated Statement of Comprehensive Income.
Acquired receivables
The fair value of acquired receivables was $0.1 million. The gross contractual amounts receivable are $0.1 million and, at the acquisition date, all of the contractual cash flows were expected to be received.
EFFECT OF ACQUISITION
The acquisition of Treasure Beach Hotel had the following effect on the Group's assets and liabilities in the year ended 30 September 2017:
Acquiree's Fair value Carrying
book values adjustments amounts
$'000 $'000 $'000
Acquiree's net assets at the acquisition
date
------------- ------------- ---------
Property, plant and equipment 7,912 1,841 9,753
------------- ------------- ---------
Inventory 17 - 17
------------- ------------- ---------
Trade and other receivables 61 - 61
------------- ------------- ---------
Cash and cash equivalents 103 - 103
------------- ------------- ---------
Trade and other payables (224) - (224)
------------- ------------- ---------
Deferred tax liabilities - (582) (582)
------------- ------------- ---------
Net identifiable assets and liabilities 7,869 1,259 9,128
------------- ------------- ---------
Consideration paid
------------- ------------- ---------
Cash paid 7,869
------------- ------------- ---------
Total consideration 7,869
------------- ------------- ---------
Bargain purchase gain 1,259
------------- ------------- ---------
5. REVENUE
The Group's revenue is earned in Barbados in US dollars or currencies pegged to US dollars.
2018 2017
$'000 $'000
Accommodation 47,604 45,405
------- -------
Food and beverage 14,060 13,594
------- -------
Other services 1,206 873
------- -------
62,870 59,872
------- -------
Virgin Holidays represented 12% of the Group's total revenue (2017: 13%). No other customer represented more than 10% of the Group's total revenue.
6. PROFIT BEFORE TAXATION
Included in profit before taxation are the following amounts:
2018 2017
$'000 $'000
Depreciation and amortisation (note 13, 14) 4,630 4,135
------- --------
Repairs and maintenance 1,577 1,742
------- --------
Operating lease expense (note 25) 76 78
------- --------
Employee costs before share-based payments (note
7) 20,079 19,463
------- --------
Inventory write-downs 873 937
------- --------
Fees payable to the Company's auditor 272 296
------- --------
Exceptional items (note 9):
------- --------
- Share-based payments related to the IPO - (640)
------- --------
- Acquisition and other exceptional costs 761 1,694
------- --------
Bargain purchase gain (note 4) - (1,259)
------- --------
AUDITOR'S REMUNERATION
2018 2017
$'000 $'000
Audit of these financial statements 89 80
------- -------
Amounts receivable by the Company's auditor
and its associates for:
------- -------
Audit of financial statements of subsidiaries
of the Company 159 157
------- -------
Taxation compliance services to subsidiaries
of the Company - 53
------- -------
Other taxation advisory services to subsidiaries
of the Company 11 6
------- -------
Taxation compliance services to the Company 6 -
------- -------
Other taxation advisory services to the Company 7 -
------- -------
272 296
------- -------
7. STAFF NUMBERS AND COSTS
The average number of people employed by the Group (including Directors) during the year, analysed by category, was as follows:
2018 2017
Number Number
Directors 2 2
-------- --------
Administration 42 31
-------- --------
Sales and marketing 19 15
-------- --------
Hotels and restaurant 997 993
-------- --------
1,060 1,041
-------- --------
The aggregate payroll costs of employees were as follows:
2018 2017
$'000 $'000
Salaries and wages 17,711 17,192
------- -------
Social security costs 2,191 2,113
------- -------
Contributions to defined contribution plans 177 158
------- -------
Total before share-based payments 20,079 19,463
------- -------
Share-based payment expenses (see note 23) (201) (353)
------- -------
19,878 19,110
------- -------
The Group operates a number of defined contribution pension plans. The total expense relating to these plans in the current year was $0.1 million (2017: $0.1 million).
8. DIRECTORS' REMUNERATION
The remuneration of the Directors comprises:
2018 2017
$'000 $'000
Salaries, fees and other short-term employee
benefits 835 1,031
------- -------
Compensation payments for loss of office - 152
------- -------
Total salaries and other short-term employment
benefits 835 1,183
------- -------
Share-based payments credit (201) (148)
------- -------
634 1,035
------- -------
The aggregate remuneration (including amounts receivable under long-term incentive schemes) of the highest paid Director during the year was $0.3 million (2017: $0.3 million). During the year, none of the Directors exercised options over shares (2017: none). None of the Directors received a payment in lieu of pension contribution (2017: none), and one Director received payments directly into a pension scheme.
9. EXCEPTIONAL ITEMS
2018 2017
$'000 $'000
Share-based payments credit relating to awards
issued on IPO - (640)
------- -------
Acquisition costs for Treasure Beach hotel (14) 419
------- -------
Pre-opening costs for Treasure Beach hotel (including
pre-opening losses in 2017) 537 276
------- -------
Restructuring costs 329 937
------- -------
Other exceptional items (91) 62
------- -------
761 1,054
------- -------
Exceptional items are disclosed separately from underlying selling, general and administrative expenses where they are non-recurring or material due to their size or nature. In the current year and prior year, exceptional costs largely relate to non-recurring pre-opening costs for Treasure Beach, which the Group acquired in 2016/17 and opened in December 2017. Restructuring costs are treated as exceptional because they are not expected to recur regularly, or in some cases are material due to their nature.
10. FINANCE INCOME AND EXPENSE
2018 2017
$'000 $'000
Finance income
------- -------
Interest receivable in relation to security
deposits 29 12
------- -------
Finance expense
------- -------
Interest on loans and finance charges 3,466 2,489
------- -------
Amortisation of capitalised finance costs 6 38
------- -------
Foreign exchange losses 109 283
------- -------
3,581 2,810
------- -------
11. TAXATION
Tax recognised in the Consolidated Statement of Comprehensive Income:
2018 2017
$'000 $'000
Current tax expense
-------- -------
Current year 1,003 2,101
-------- -------
Adjustments for prior years 6 (398)
-------- -------
Total current tax expense 1,009 1,703
-------- -------
Deferred tax expense
-------- -------
Origination and reversal of temporary differences 1,142 96
-------- -------
Recognition of previously unrecognised tax losses (1,048) -
-------- -------
Total deferred tax expense (note 15) 94 96
-------- -------
Tax expense in the Consolidated Statement of
Comprehensive Income 1,103 1,799
-------- -------
RECONCILIATION OF EFFECTIVE TAX RATE
2018 2017
$'000 $'000
Profit before tax for the year 10,614 10,987
-------- -------
Tax using the Barbados corporation tax rate
of 30% (2017: 25%) 3,184 2,747
-------- -------
Effect of change in Barbados corporation tax (18) -
rate on deferred tax balances
-------- -------
Effect of differences in tax rates in foreign
jurisdictions 87 146
-------- -------
Utilisation of capital allowances (937) (533)
-------- -------
Recognition of previously unrecognised tax losses (1,048) 45
-------- -------
Non-deductible expenses 792 527
-------- -------
Marketing development allowance (791) (624)
-------- -------
Tax effect of bargain purchase gain - (314)
-------- -------
Tax losses not recognised 17 203
-------- -------
Over provided in prior years 6 (398)
-------- -------
Unwind of deferred tax liability (189) -
-------- -------
Total tax expense 1,103 1,799
-------- -------
12. EARNINGS PER SHARE
2018 2017
$'000 $'000
Profit used in calculating basic and diluted
earnings per share 9,511 9,188
----------- -----------
Bargain purchase gain - (1,259)
----------- -----------
Exceptional costs 761 1,054
----------- -----------
Tax on one-off items (190) (267)
----------- -----------
Profit used in calculating adjusted basic and
diluted earnings per share 10,082 8,716
----------- -----------
Number of shares
----------- -----------
Weighted average number of shares for the purpose
of:
----------- -----------
- basic earnings per share and adjusted basic
earnings per share (number) 88,815,789 88,815,789
----------- -----------
- diluted earnings per share and adjusted diluted
earnings per share (number) 88,954,936 89,100,871
----------- -----------
Earnings per share
----------- -----------
Basic earnings per share (cents per share) 10.7 10.3
----------- -----------
Diluted earnings per share (cents per share) 10.7 10.3
----------- -----------
Adjusted earnings per share (cents per share) 11.4 9.8
----------- -----------
Adjusted diluted earnings per share (cents per
share) 11.3 9.8
----------- -----------
Basic earnings per share is calculated by dividing profit for the year attributable to equity holders of the Company by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share amounts are calculated by dividing profit for the year attributable to equity holders of the Company by the weighted average number of ordinary shares outstanding during the year together with the dilutive number of ordinary shares.
The Company has 1,925,101 potentially issuable shares (2017: 1,717,223) all of which relate to share options issued to Directors and key management personnel. The dilutive number of issuable shares is 139,147 (2017: 285,082) for the purposes of calculating the diluted earnings per share.
Adjusted basic and diluted earnings per share has been shown in order to compare underlying earnings per share year-on-year. In order to calculate adjusted basic and diluted earnings per share, the numerator has been adjusted to exclude the after-tax effect of bargain purchase gains, acquisition and pre-opening costs relating to new hotels and other exceptional items. Further details on exceptional items are given in note 9.
13. PROPERTY, PLANT AND EQUIPMENT
Land and Motor vehicle Fixtures Under construction
buildings $'000 & fittings $'000 Total
$'000 $'000 $'000
Cost
----------- -------------- ------------ ------------------- --------
Balance at 1 October 2016 166,326 27 41,229 195 207,777
----------- -------------- ------------ ------------------- --------
Additions 1,425 - 1,590 2,532 5,547
----------- -------------- ------------ ------------------- --------
Additions from business
combinations 9,700 12 41 - 9,753
----------- -------------- ------------ ------------------- --------
Transfers 171 - 23 (194) -
----------- -------------- ------------ ------------------- --------
Disposals (347) - (470) (2) (819)
----------- -------------- ------------ ------------------- --------
Balance at 30 September
2017 177,275 39 42,413 2,531 222,258
----------- -------------- ------------ ------------------- --------
Additions 2,550 30 2,424 702 5,706
----------- -------------- ------------ ------------------- --------
Transfers 891 - 1,559 (2,450) -
----------- -------------- ------------ ------------------- --------
Disposals (170) (12) (279) (2) (463)
----------- -------------- ------------ ------------------- --------
Balance at 30 September
2018 180,546 57 46,117 781 227,501
----------- -------------- ------------ ------------------- --------
Depreciation
----------- -------------- ------------ ------------------- --------
Balance at 1 October 2016 5,678 8 29,303 - 34,989
----------- -------------- ------------ ------------------- --------
Depreciation charge for
the year 883 6 3,223 - 4,112
----------- -------------- ------------ ------------------- --------
Disposals (170) - (387) - (557)
----------- -------------- ------------ ------------------- --------
Balance at 30 September
2017 6,391 14 32,139 - 38,544
----------- -------------- ------------ ------------------- --------
Depreciation charge for
the year 1,167 21 3,374 - 4,562
----------- -------------- ------------ ------------------- --------
Disposals (45) (3) (223) - (271)
----------- -------------- ------------ ------------------- --------
Balance at 30 September
2018 7,513 32 35,290 - 42,835
----------- -------------- ------------ ------------------- --------
Net book value
----------- -------------- ------------ ------------------- --------
At 30 September 2017 170,884 25 10,274 2,531 183,714
----------- -------------- ------------ ------------------- --------
At 30 September 2018 173,033 25 10,827 781 184,666
----------- -------------- ------------ ------------------- --------
No interest has been capitalised into property, plant and equipment. No items of property, plant and equipment are held under finance leases. The Group's properties are used as security for bank loans (see note 20). The majority of the Group's non-current assets are located in Barbados.
Impairment reviews
All properties were valued by CBRE in May 2018. This valuation indicated a value of $249.5 million, which is in excess of their carrying amount, but reduced overall from the prior valuation. In addition, the Group's market capitalisation remained below the Group's net assets.
In line with IAS 36, the Directors considered these as possible indicators of impairment and therefore carried out impairment reviews at the level of cash generating units (CGU).
The value in use calculations include estimates about the future financial performance of each CGU. The cash flow projections cover five years based on management-approved financial budgets for the first year, and reflect management's expectations of the medium-term operating performance of the CGU and its growth prospects for the subsequent years. Cash flows beyond the five year period are extrapolated using the estimated growth rates of 2%.
Key assumptions in the value in use calculations include the revenue and adjusted EBITDA growth rates which directly influence the forecasted operating cash flows as well as the discount rate applied. In determining these assumptions, management has taken into account the current economic climate and the resulting impact on expected growth and discount rates, as applicable to the Group's business and industry. The average annual revenue growth rates used reflect a conservative estimate based on past experience and are considered appropriate. The discount rate applied of 7% represents a pre-tax rate reflecting the Group's weighted average cost of capital.
Consistent with the CBRE report and internal discounted cash flow analysis, the fair value of the Group's property, plant and equipment is considered to be greater than the book value recorded in these financial statements, and as such no impairments have been recognised.
14. INTANGIBLE ASSETS
1 October 30 September
2016 2017
$'000 Additions Amortisation $'000
$'000 $'000
Cost - 137 - 137
----------- ----------- -------------- -------------
Accumulated amortisation - - (23) (23)
----------- ----------- -------------- -------------
Carrying amount - 137 (23) 114
----------- ----------- -------------- -------------
1 October 30 September
2017 2018
$'000 Additions Amortisation $'000
$'000 $'000
Cost 137 397 - 534
---------- ----------- -------------- -------------
Accumulated amortisation (23) - (68) (91)
---------- ----------- -------------- -------------
Carrying amount 114 397 (68) 443
---------- ----------- -------------- -------------
Intangible assets are classified as software, and largely relate to the Group's website in the prior year and website and internal software systems in the current year.
No impairment indicators for intangible assets have been identified at the year end.
15. DEFERRED TAX ASSETS AND LIABILITIES
RECOGNISED DEFERRED TAX ASSETS AND LIABILITIES
Deferred tax assets and liabilities are attributable to the following:
Assets Liabilities
2018 2017 2018 2017
$'000 $'000 $'000 $'000
------- ------- -------- --------
Property, plant and equipment 870 1,420 (5,646) (5,238)
------- ------- -------- --------
Tax value of carried forward
losses 1,943 1,227 - -
------- ------- -------- --------
Qualifying capital expenditure 2,537 2,482 - -
------- ------- -------- --------
Tax assets/(liabilities) 5,350 5,129 (5,646) (5,238)
------- ------- -------- --------
Offsetting - (191) - 191
------- ------- -------- --------
Net deferred tax assets/(liabilities) 5,350 4,938 (5,646) (5,047)
------- ------- -------- --------
Subsequent to year end but effective for the 2017/18 tax year, the Government of Barbados increased the corporation tax rate to 30% from 25%. The relevant deferred tax assets and liabilities have been recognised at the new rate.
The recoverability of the deferred tax asset is dependent on future taxable profits in excess of those arising from the reversal of deferred tax liabilities. A deferred tax asset has been recognised to the extent that it is considered to be recoverable based on forecasts for future periods.
At 30 September 2018, the value of the unrecognised deferred tax assets is $0.0 million (2017: $0.2 million). $0.0 million (2017: $0.2 million) of deferred tax assets and deferred tax liabilities are presented net in the Statement of Financial Position as the Group has the legal right to settle current tax amounts on a net basis and the deferred tax amounts are levied by the same taxing authority on the same group of entities that intend to realise the asset and settle the liability at the same time.
MOVEMENT IN DEFERRED TAX DURING THE YEAR
1 October Recognised 30 September
2017 in income 2018
$'000 $'000 $'000
Property, plant and equipment (3,818) (958) (4,776)
---------- ----------- -------------
Tax value of loss carry-forwards
utilised 1,227 716 1,943
---------- ----------- -------------
Qualifying capital expenditure 2,482 55 2,537
---------- ----------- -------------
(109) (187) (296)
---------- ----------- -------------
16. INVENTORIES
2018 2017
$'000 $'000
Food and beverage 735 678
------- -------
Base stock 2,192 2,171
------- -------
Guest supplies and stationery 144 170
------- -------
Goods in transit 62 43
------- -------
3,133 3,062
------- -------
There is no significant difference between the fair value of inventories and the values stated above.
17. TRADE AND OTHER RECEIVABLES
Group Group Company Company
2018 2017 2018 2017
$'000 $'000 $'000 $'000
Trade receivables 2,531 2,411 - -
------- ------- -------- --------
Prepayments 756 746 48 42
------- ------- -------- --------
Electricity bonds 529 461 - -
------- ------- -------- --------
VAT receivables 1,010 446 349 -
------- ------- -------- --------
Other receivables 1,384 604 - -
------- ------- -------- --------
6,210 4,668 397 42
------- ------- -------- --------
There were no receivables that were past due or considered to be impaired. There is no significant difference between the fair value of other receivables and the values stated above. All amounts shown under trade and other receivables are due to be received within one year.
CREDIT RISK CONCENTRATION BY GEOGRAPHY
The concentration of credit risk for trade receivables for the Group at the reporting date by geographic region was:
2018 2017
$'000 $'000
Barbados 57 80
------- -------
UK 1,672 1,629
------- -------
United States and Canada 454 559
------- -------
Other 348 143
------- -------
2,531 2,411
------- -------
CREDIT RISK CONCENTRATION BY COUNTERPARTY
The concentration of credit risk for trade receivables for the Group at the reporting date by type of counterparty was:
2018 2017
$'000 $'000
Tour operators 1,948 2,165
------- -------
Credit card companies 281 219
------- -------
Other 302 27
------- -------
2,531 2,411
------- -------
CREDIT QUALITY OF TRADE RECEIVABLE AND VALUATION ALLOWANCES
Industry standard repayment terms for credit sales are applied to all receivables. The Group monitors each receivable balance on a regular basis with regard to credit sales granted and payments received. In order to manage credit risk credit limits are set for customers based on volume of business and payment history. New accounts are usually on a prepaid basis. Credit limits are reviewed by the finance team on a regular basis based on the customer's debt ageing and collection history.
The ageing of trade receivables for the Group at the reporting date was:
Carrying Carrying
amount amount
Gross 2018 Gross 2017
2018 $'000 2017 $'000
$'000 $'000
Not past due 1,983 1,983 2,124 2,124
-------- --------- -------- ---------
Past due (0-30 days) 498 498 212 212
-------- --------- -------- ---------
Past due (31-120 days) 46 46 74 74
-------- --------- -------- ---------
More than 120 days 4 4 37 1
-------- --------- -------- ---------
2,531 2,531 2,447 2,411
-------- --------- -------- ---------
Trade receivables are non-interest bearing. There are no indications at the reporting date that recognised debtors will not meet their payment obligations.
The movement in the allowance for impairment in respect of trade receivables for the Group during the year was as follows:
2018 2017
$'000 $'000
Balance at the start of the year 36 -
------- -------
Allowance recognised 12 36
------- -------
Allowance utilised - -
------- -------
Allowance reversed (36) -
------- -------
Balance at end of the year 12 36
------- -------
18. SHORT-TERM INVESTMENTS
The Group has an investment in the Barbados Golf Club which was originally undertaken for commercial reasons. During the financial year ended 30 September 2017, the Group impaired its investment from $0.1 million to less than $0.1 million. The carrying amount reflects the fair value of this investment.
19. CASH AND CASH EQUIVALENTS
2018 2017
$'000 $'000
Cash and cash equivalents 2,357 996
-------- -------
Bank overdraft (6,629) (411)
-------- -------
Net cash and cash equivalents (4,272) 585
-------- -------
Cash and cash equivalents comprise cash, cash at bank and bank deposits with a maturity of up to 90 days.
20. LOANS AND BORROWINGS
2018 2017
$'000 $'000
Current liabilities
------- -------
Secured bank loans 6,042 5,595
------- -------
Third party loan 500 500
------- -------
Revolving credit facility 1,000 1,000
------- -------
7,542 7,095
------- -------
Non-current liabilities
------- -------
Secured bank loans 56,370 62,252
------- -------
Third party loan - 500
------- -------
Revolving credit facility 3,980 3,850
------- -------
60,350 66,602
------- -------
67,892 73,697
------- -------
Changes in the Group's liabilities arising from financing activities are as follows:
Cash flows
1 October Drawdowns Repayments 30 September
2017 2018
$'000 $'000 $'000 $'000
---------- ---------- ----------- -------------
Secured bank loans 67,847 - (5,435) 62,412
---------- ---------- ----------- -------------
Revolving credit facility 4,850 800 (670) 4,980
---------- ---------- ----------- -------------
Third party loan 1,000 - (500) 500
---------- ---------- ----------- -------------
73,697 800 (6,605) 67,892
---------- ---------- ----------- -------------
The Group's loans and borrowings are measured at amortised cost. The carrying amount of loans and borrowings is equivalent to their outstanding originated value. For more information about the Group and Company's exposure to interest rate risk, see note 29.
During the period, the Group received $0.8 million from loans and borrowings (2017: $13.4 million) and repaid $6.1 million (2017: $4.2 million). The Group also repaid $0.5 million in relation to third-party borrowings (2017: $1.0 million).
Secured bank loans
In May 2015, the Group entered into a Credit Agreement with the Bank of Nova Scotia to provide a US-dollar Term Loan Commitment of $50 million with a maturity of 2020 which was fully drawn. This loan facility was increased and drawn for the acquisition of Waves in April 2016 by $13.5 million and Treasure Beach in May 2017 by $8.4 million for a total of $71.9 million. After accounting for repayments of $5.4 million during the year (2017: $4.0 million), $62.4 million of this facility remains outstanding.
As part of the Credit Agreement with the Bank of Nova Scotia, the Group also has a Revolving Loan Commitment of $5.0 million. Amounts drawn on this facility are repayable over five years from the date of drawdown. $5.0 million of this facility was drawn at the end of the year (2017: $4.8 million).
The Group also has an operating overdraft facility denominated in Barbados dollars of $10 million. This facility was drawn down by $6.6 million as at 30 September (2017: $0.4 million).
The secured bank loans and revolving credit facility carry interest at US LIBOR plus 275 basis points. The Group's management review the forecast US LIBOR rates on a regular basis and may lock in the future rate for a specific period depending on the assessment of trends and forecasts. The overdraft carries interest at the Barbados Government Base rate less 200 basis points. The Group does not have any fixed rate debt.
The Company is party as a guarantor to cross-guarantees in respect of the indebtedness of its subsidiary undertakings to the Bank of Nova Scotia. At 30 September 2018, the total indebtedness of subsidiary undertakings under these cross-guarantees amounted to $67.4 million (2017: $72.7 million).
Subsequent to the year-end, in October 2018 the Group syndicated a portion of the Bank of Nova Scotia loans to FirstCaribbean International Bank (Bahamas) Limited on the same terms and conditions existing with the Bank of Nova Scotia.
Third-party loan
As part of the acquisition of Waves Hotel & Spa, the Group agreed a US dollar interest-free loan with the vendor in the amount of $2.0 million. This loan is repayable in four annual instalments of $0.5 million commencing from September 2016. The final instalment is due in September 2019.
Sensitivity analysis
An increase of 100 basis points in LIBOR interest rates would decrease profit by $0.6 million on an annual basis. This analysis assumes that all other variables remain constant.
The financial liabilities which have a contractual maturity greater than one year are the Group's secured loans and revolving credit facility. Including estimated interest payments and excluding the effect of netting agreements, the payments due in relation to the Group's loans and borrowings are $10.4 million due within one year and $63.4 million due between one and five years (2017: $8.6 million due within one year and $68.6 million due between one and five years).
21. TRADE AND OTHER PAYABLES
Group Group Company Company
2018 2017 2018 2017
$'000 $'000 $'000 $'000
Trade payables 2,320 2,682 - -
------- ------- -------- --------
Social security and other
taxes 454 567 - -
------- ------- -------- --------
Accrued expenses 1,527 1,576 13 43
------- ------- -------- --------
Deferred income 1,906 2,149 - -
------- ------- -------- --------
Other payables 49 107 - -
------- ------- -------- --------
6,256 7,081 13 43
------- ------- -------- --------
All trade and other payables are due for payment within 12 months. There is no significant difference between the fair value of the trade and other payables and the values stated above. Trade payable days for the Company at 30 September 2018 were 30 days (2017: 30 days).
22. PROVISIONS
Provisions recognised at the end of the year were as follows:
1 October Additional Provisions Provisions 30 September
2017 provision utilised released 2018
$'000 $'000 $'000 $'000 $'000
Legal 198 - - (51) 147
---------- ----------- ----------- ----------- -------------
Annual leave 312 92 (227) (85) 92
---------- ----------- ----------- ----------- -------------
Sales incentive 105 34 (68) (29) 42
---------- ----------- ----------- ----------- -------------
615 126 (295) (165) 281
---------- ----------- ----------- ----------- -------------
The Group recognises provisions with respect to the following:
-- Legal claims - the Group is sometimes involved in litigation where the timing, amount or likelihood of any outcome is uncertain;
-- Annual leave - the Group recognises an amount with respect to annual leave owing to employees; and
-- Sales incentives - the Group rewards certain travel agents with accommodation or cash rewards based on sales. The timing, amount or likelihood of any settlement of these rewards is uncertain.
23. SHARE-BASED PAYMENTS
Awards are made under long-term incentive and other arrangements. Certain employees of the Group have been eligible for options over ordinary shares in the Company, awarded under the Share Option Scheme.
The award of options is subject to market and non-market conditions. The market conditions are based on the total shareholder return over the performance period. The non-market conditions are based on the Group's earnings per share return over the same performance period. Once these criteria have been met the options remain exercisable subject to the vesting provisions. If performance conditions are not met, then a portion or all of the awards will lapse.
All options granted under the Scheme have a fixed exercise price of 1 pence per option. The contractual life of the options is five years. Options cannot normally be exercised until the full vesting conditions including term of service have been met. The options are classified as equity-settled.
The issued share options include market-based performance conditions. Option granted under the Share Option Scheme have been valued using a combination of the Monte Carlo option pricing model (TSR conditions) and Black- Scholes method (EPS conditions).
The assumptions used in the calculation of the fair value of share-based payments are as follows:
-- The expected life of the share options is five years (2017: five years). -- Expected dividends (dividend yield) is 4% (2017: 7%). -- All option exercises are expected to be equity-settled.
-- The expected volatility in all cases is 26%. This was based upon the historical share price volatility of the Company's TSR to the grant date using daily TSR data over a period from the grant date at 10 April 2018 to the midpoint of the 30 day average period at the end of the performance period on 30 September 2020.
-- The risk free rate applied to the options is 1% and is based upon the yield on zero-coupon government bonds of a term commensurate with the expected option life.
-- It has been assumed that the employee attrition rate will be 5% (2017: 5%) throughout the period.
-- The exercise price and weighted average exercise price of all options is 1 pence. -- The weighted average share price during the year was 82 pence (2017: 80 pence).
OPTIONS OVER ORDINARY SHARES OUTSTANDING AS AT 30 SEPTEMBER 2018
Grant date Share Number Exercise Fair value Expected Contractual Vesting date
price of options price per option forfeiture maturity
(p) outstanding (p) (p) rate (years)
21 July 30 September
2017 78 947,945 1 73 5% 3.8 2019
------- ------------- --------- ------------ ------------ ------------ -------------
10 April 30 September
2018 85 977,156 1 55 5% 4.5 2020
------- ------------- --------- ------------ ------------ ------------ -------------
1,925,101
------- ------------- --------- ------------ ------------ ------------ -------------
A credit of $0.2 million has been included in the Statement of Comprehensive Income (2017: credit of $0.4 million). No outstanding options at 30 September 2018 are exercisable.
24. SHARE CAPITAL AND RESERVES
2018 2017
Issued Number Issued Number
Number of Ordinary Shares of the $'000 of shares $'000 of shares
Company of 1p each
------- ----------- ------- -----------
As at 30 September 1,367 88,815,789 1,367 88,815,789
------- ----------- ------- -----------
The holders of Ordinary Shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company.
DIVIDS
During the year the Company declared an interim dividend of 1.33 pence per ordinary share (2017: 3.5 pence per ordinary share) which was paid. After the balance sheet date, a final dividend of 2.66 pence per ordinary share (2017: 3.5 pence) was proposed by the Directors. The final dividend has not been provided for.
MERGER RESERVE
The merger reserve represents amounts attributable to equity in respect of merged subsidiary undertakings and includes an amount relating to the capitalisation of an inter-company loan within the subsidiaries which is shown within merger reserve on consolidation.
In May 2015, the Company became the new holding company for the Group. This was put into effect through a share-for-share exchange of 56,615,788 ordinary shares of GBP0.01 in the Company for the whole of the issued capital of eight St Lucia domiciled companies. These companies owned all of the share capital in ten trading subsidiaries. The introduction of the new holding company was accounted for as a capital reorganisation using the merger accounting principles prescribed within IFRS 3 Business Combinations.
The use of merger accounting principles resulted in a balance in the Group and Company reserves which has been classified as a merger reserve and included in the Group's shareholders' funds. The Company recognised the value of its investment in the acquired St Lucian companies at a value based upon the initial share placing price on admission to AIM of GBP1 per share. As permitted by Section 612 of the Companies Act 2006 the amount attributable to share premium has been transferred to the merger reserve.
25. OBLIGATIONS UNDER OPERATING LEASES
The Group has total non-cancellable operating lease rentals in respect of its US sales office of $0.1 million (2017: $0.2 million). Of these amounts, $0.1 million (2017: $0.1 million) are payable in less than one year and no amounts are payable between one and two years (2017: $0.1 million).
No other lease obligation is considered significant. The Company has no operating lease commitments.
26. COMMITMENTS AND CONTINGENCIES
There were less than $0.1 million of outstanding capital commitments at 30 September 2018 (30 September 2017: $0.1 million).
The Company is party as a guarantor to cross-guarantees in respect of the indebtedness of subsidiary undertakings. At 30 September 2018 the total indebtedness of subsidiary undertakings under these cross-guarantees amounted to $67.4 million (2017: $72.7 million).
There are no other material contingent liabilities attributable to the Group or Company.
27. POST-BALANCE SHEET EVENTS
There are no disclosable post-balance sheet events.
28. RELATED PARTIES
TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL
The Group has a related party relationship with its Directors, related companies, other Group companies and affiliated parties controlled by its Directors, senior officers, executives and significant shareholders of the parent company. "Key management personnel" includes certain senior officers of the Elegant Hotels Group.
Directors of the Company and their immediate relatives control 16.7% of the voting shares of the Company.
The compensation of key management personnel is as follows:
Group Group Company Company
2018 2017
2018 2017 $'000 $'000
$'000 $'000
Key management remuneration including
social security costs 1,666 2,002 - -
------- ------- -------- --------
Share-based payments credit (201) (316) - -
------- ------- -------- --------
1,465 1,686 - -
------- ------- -------- --------
TRANSACTIONS BETWEEN THE COMPANY AND ITS SUBSIDIARY UNDERTAKINGS
In consideration for the services that the Company provides in the management of the Group and in arranging the financing of the subsidiaries, the Company has entered into management service agreements with those subsidiaries on an arm's length basis. The Company recognised $0.6 million in management fees during the year (2017: $1.0 million) and there were no amounts receivable from subsidiaries at 30 September 2018 (2017: nil).
29. FINANCIAL INSTRUMENTS
FAIR VALUES OF FINANCIAL INSTRUMENTS
The Group's financial instruments are classified into a fair value hierarchy based on the valuation technique used to determine fair value. This hierarchy can be summarised as follows:
-- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
-- Level 2: inputs other than quoted prices included within Level 1 that are observable for the
asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
-- Level 3: inputs for the asset or liability that are not based on observable market data (unobservable input).
The Group's cash and cash equivalents of $2.4 million (2017: $1.0 million) are classified as Level 1 in the valuation hierarchy. All other financial assets of $2.5 million (2017: $2.4 million) and financial liabilities of $84.7 million (2017: $81.9 million) are classified as Level 3 in the valuation hierarchy. The carrying value of all of the Group's net financial liabilities of $80.8 million (2017: $78.4 million) is equivalent to their fair value.
A valuation conducted by CBRE dated May 2018 indicated a value of $249.5 million for the Group's properties. This is classified at level 3 under the fair value hierarchy and valued using the highest and best use method. The fair value has been primarily derived using discounted cash flows, supported by market transaction data.
The Company had trade and other payables with a carrying value of $0.0 million (2017: $0.0 million) which would be classified as Level 3 in the fair value hierarchy.
FINANCIAL RISK MANAGEMENT
The Board has overall responsibility for the determination of the Group's risk management objectives and policies. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group's competitiveness and flexibility. The Group has not issued or used any financial instruments of a speculative nature.
To the extent financial instruments are not carried at fair value in the Consolidated Statement of Financial Position, book value approximates to fair value at 30 September 2018 and 30 September 2017.
Cash and cash equivalents are held in various currencies including US dollars, Barbados dollars and Sterling.
Trade and other receivables are measured at amortised cost. Book values and expected cash flows are reviewed by the Board and any impairment charged to the Consolidated Statement of Comprehensive Income in the relevant period.
Trade and other payables are measured at book value and amortised cost.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group's receivables from customers. The Group is exposed to credit risk in respect of these balances such that, if one or more of the customers' encounter financial difficulties, this could adversely affect the Group's financial results. The Group attempts to mitigate credit risk by assessing the credit rating of new customers prior to entering into contracts and by entering into contracts with customers with agreed credit terms. An allowance is made against any receivable considered to be impaired.
The Group is only exposed to credit risk on cash and cash equivalents (refer note 19) and trade receivables (refer note 17). The maximum exposure to credit risk at the balance sheet date by class of financial asset is limited to its carrying amount. The credit risk associated with cash is remote. The Group's principal credit risk arises from non-recovery of trade receivables. The credit risk relating to receivables is detailed in note 17.
The Company has no assets that are exposed to credit risk.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.
Liquidity risk is mitigated by management of working capital, capital expenditure and debt servicing requirements. The Group and the Company seek to manage liquidity risk by ensuring sufficient funds are available to meet foreseeable needs and to invest cash safely and profitably. The Group monitors its cash resources through short, medium and long-term cash forecasting against available facilities.
Management monitors the liquidity risk by considering the maturity of both financial assets and projected cash flows from operations. Short-term flexibility is available through additional overdraft and capital expenditure facilities as set out in note 20.
All financial liabilities classified as current have a contractual maturity of less than one year. The contractual maturities for the loans and borrowings can be found at note 20.
The Company has contractual cash maturities of $nil (2017: $nil) in relation to trade and other payables of less than one year.
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group's income or the value of its holdings of financial instruments.
The majority of the Group's business is conducted in US dollars and Barbados dollars. The exchange rate of the Barbados dollar is fixed to the US dollar at a rate of Bds$1.98 = US$1.00. Revenue is earned in US dollars from contracts with tour operators who effectively take the risk of any fluctuation against the currency paid by the end consumer. The longer-term risk to the Group of a deterioration in the rate of exchange in origin countries is that the rates for hotel accommodation may be perceived as becoming more expensive.
The majority of the Group's expenditure, including operating costs as well as capital expenditure, occurs in US dollars or in Barbados dollars.
The Group's exposure to foreign currency risk is small and limited to the carrying amount for monetary financial instruments that are denominated in currencies other than US dollars and Barbados dollars and to transactions that are payable in Sterling, including dividends to shareholders of the Company.
Interest rate risk
Market interest rate risk arises from the Group's borrowings which are denominated in US dollars.
None of the Group's financial assets and liabilities are subject to fixed rates of interest. The most significant element of the financial liabilities relates to the Group's long-term loan which is subject to interest at US LIBOR plus 275 basis points and is therefore entirely variable.
The Group is also exposed to market interest rate risk in respect of its cash balances held pending investment in the growth of the Group's operations. The effect of interest rate changes on the Group's financial instruments is set out in note 20.
Capital management
The Group manages its capital to ensure that the Group will be able to continue as a going concern while maximising the return to shareholders through optimising the debt and equity balance. The capital structure of the Group consists of cash and cash equivalents and equity attributable to equity holders of the Company. The Group's capital is made up of share capital, share premium, merger reserve, translation reserve and retained earnings totalling $115.4 million (30 September 2017: $109.8 million).
The Group's objectives for maintaining capital are:
-- to safeguard the entity's ability to continue as a going concern, so that it can continue to
provide returns for shareholders and benefits for other stakeholders; and
-- to provide an adequate return to shareholders by pricing products and services commensurately
with the level of risk.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group's capital is not restricted. Management may seek additional external borrowings to fund the future investment and growth of the Group. All funding required to expand the Group's business, including the acquisition and development of new hotels and for working capital purposes are financed from existing cash resources where possible. Management will also consider future fundraising or bank finance where appropriate.
The Group has a progressive dividend policy which takes into account the results of the past year and the trading outlook.
30. INVESTMENTS IN SUBSIDIARY UNDERTAKINGS
The Company has the following subsidiaries:
Principal
place of business
/ country
of registered
office address
2018 2017
Class of % %
shares
Company name shareholding shareholding
===================================== ===================== ============ ================ ================
Elegant Finance (St Lucia) Limited St Lucia Ordinary 100% 100%
===================================== ===================== ============ ================ ================
Elegant Services (St Lucia)
Limited St Lucia Ordinary 100% 100%
===================================== ===================== ============ ================ ================
Colony SL1 Limited St Lucia Ordinary 100% 100%
===================================== ===================== ============ ================ ================
The House SL1 Limited St Lucia Ordinary 100% 100%
===================================== ===================== ============ ================ ================
Crystal SL1 Limited St Lucia Ordinary 100% 100%
===================================== ===================== ============ ================ ================
Tamcove SL1 Limited St Lucia Ordinary 100% 100%
===================================== ===================== ============ ================ ================
Turtle SL1 Limited St Lucia Ordinary 100% 100%
===================================== ===================== ============ ================ ================
Daphne's Restaurant (St Lucia)
Limited St Lucia Ordinary 100% 100%
===================================== ===================== ============ ================ ================
Waves SL1 Limited St Lucia Ordinary 100% 100%
===================================== ===================== ============ ================ ================
BW SL1 Limited St Lucia Ordinary 100% 100%
===================================== ===================== ============ ================ ================
Treasure SL1 Limited* St Lucia Ordinary 100% 100%
===================================== ===================== ============ ================ ================
International Tourism Management
Services Limited* Barbados Ordinary - 100%
===================================== ===================== ============ ================ ================
International Tourism Management
Services LLC* United States Ordinary 100% 100%
===================================== ===================== ============ ================ ================
Colony Club (Barbados) Limited* Barbados Ordinary 100% 100%
===================================== ===================== ============ ================ ================
Windward Investments Limited* Barbados Ordinary 100% 100%
===================================== ===================== ============ ================ ================
Crystal Cove Hotel Limited* Barbados Ordinary 100% 100%
===================================== ===================== ============ ================ ================
Tamarind Cove Hotel Co. Limited* Barbados Ordinary 100% 100%
===================================== ===================== ============ ================ ================
Turtle Beach Resort Limited* Barbados Ordinary 100% 100%
===================================== ===================== ============ ================ ================
Daphne's Restaurant Limited* Barbados Ordinary 100% 100%
===================================== ===================== ============ ================ ================
Paynes Bay Investments Limited* Barbados Ordinary 100% 100%
===================================== ===================== ============ ================ ================
Waves Hotel Limited* Barbados Ordinary 100% 100%
===================================== ===================== ============ ================ ================
* Wholly owned held indirectly through subsidiary undertakings.
The entities listed in the above have the following registered addresses according to their country:
-- St. Lucia - Hewanorra Corporate Services Limited, Hewanorra House, Trou Garnier Financial Centre, Point Seraphine, Castries, St. Lucia
-- Barbados - Suite 250 Tamarind Cove Hotel, Paynes Bay, St. James, BB24023, Barbados
-- United States - Incorp Services Inc., 17888 67th Court North, Loxahatchee FL, 33470, United States
All investments in subsidiaries have been consolidated in these financial statements. Included within investments are inter-company loans to the subsidiaries which are considered by management to be as permanent as equity and have been treated as such.
During the year, investments held by the Company decreased by $4.6 million as a result of movements in intercompany loans classified as investments.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
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