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Name | Symbol | Market | Type |
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Ishr Msci Emu | LSE:CEU | London | Exchange Traded Fund |
Price Change | % Change | Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Traded | Last Trade | |
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0.00 | 0.00% | 128.88 | 128.76 | 129.00 | 0 | 01:00:00 |
CHE Hotel Group PLC ("the company" or "CHE") For Immediate Release 25 April 2007 Preliminary Results for year ended 31 December 2006 CHE Hotel Group plc announces its unaudited results for the year ended 31st December 2006 * Revenue £79.8 million (2005 £79.2 million) * Operating loss £2.8 million (2005 profit £4.6 million) * Loss after Taxation £7.9 million (2005 profit £0.6 million) Highlights * Equity raised to upgrade existing estate 90% committed at year end * Exit from the underperforming European Master Franchise Agreement (MFA) successfully concluded in November 2006 * Significant restructuring and strengthening of the management team * Trading disappointing in 2006 * Positive start to 2007 including the opening of two further Sleep Inns Chairman's Comment Results for the year can only be described as very disappointing. However, we have not deviated from doing the things that we believe are in the best interests of the business and shareholders going forward. The equity raised in the year is now largely in place to produce returns. We continue to eliminate marginal businesses and focus our efforts on building a superior operating business on high quality assets. Trading in the first quarter of 2007 has been encouraging. For further information please contact CHE Hotel Group Plc: 020 8233 2001 Michael Prager, Chief Executive Paul Mitchell, Chief Financial Officer Waughton 020 7796 9999 Robin Hepburn/David Millham KBC Peel Hunt 020 7418 8900 Jonathan Marren Notes to Editors: CHE Hotel Group Plc CHE (Choice Hotels Europe) operates 64 owned, leased or managed hotels in the UK, France, Germany and Belgium. In addition it holds the Master Franchise for Choice Hotels' brands in the UK and Ireland, amounting to 73 franchises. It also operates the New Connaught Rooms conference and banqueting suite close to London's Covent Garden. Choice brands include Sleep Inn, Comfort Inn, Quality Hotel and Clarion Hotel. A placing and open offer raised £18.6m net of costs in January 2006 which is being invested in upgrading the Group's hotels and accelerating the development to Sleep Inns, its premier limited service brand. The CHE management team has considerable experience in the hotel sector. Michael Prager has held senior positions in Utell International, Intercontinental and Radisson Hotel groups. Paul Mitchell, was formerly Vice President of Financial Planning and Control for Europe, Middle East and Africa at Intercontinental Hotel Group in addition to holding senior finance positions in Granada, Forte and Allied Lyons. Chairman's Statement Introduction As I reported to shareholders last year, 2006 was always going to be a year of transition and so it proved to be. Investment Many of our hotels are unrecognisable from a year ago. In all we have fully or partially upgraded 700 bedrooms and 11 public areas. Conducting this level of building and decorating work carries its own particular challenges, some of our hotels resembled construction sites at various times in the year and up to 5% of our inventory was unavailable for sale at any given time. Nevertheless we pressed on, particularly through the summer months, and as at the year-end I am happy to inform shareholders that 90% of funds earmarked for refurbishment have now been utilised and upgrades to the existing state are complete and in a position to generate the returns expected. We have brought these capital works in as expected with very little overrun in budget or time. Our development team has been busy throughout the year identifying and negotiating new sites for our market leading Sleep Inn product. During the year we opened new Sleep Inns in Derby and Shrewsbury, both of which are trading very successfully and generating profit. At the end of 2006 we had six Sleep Inns open and operating and we will double that by the end of 2007 amounting to 1,000 bedrooms. We are either in development or have signed agreements for new Sleep Inns in London, Birmingham, Glasgow, Sheffield, Braintree (Stansted), Chester and Doncaster and our pipeline continues to develop. Our goal remains 60 Sleep Inns or over 4000 rooms by the end of 2011. Strategy I informed shareholders last year that our strategy was to focus on two markets; premium limited service and mid-market full service. This remains unchanged, our focus is to grow the Sleep brand and improve the Quality brand as demonstrated by our programme of refurbishment. At the same time we are taking an unemotional look at any marginal or non-performing businesses and taking whatever action is necessary. I am pleased to advise you that after prolonged negotiations with Choice Hotels International we have exited the European Master Franchise Agreement (MFA) as of November 2006. Selling and servicing franchise agreements across all of continental Europe, often for very small, 30-50 bedroom hotels did not prove good use of our capital or management time. Our net income (average per hotel) from European franchising is half that of the UK and our cost to service this business was high due to the size of the territory and the regional orientation of small independent hotels. Exiting the European MFA will eliminate the loss of £1.5 million incurred in 2006 and avoid similar losses in the future whilst leaving us free to develop our owned managed and leased business in continental Europe without constraint and in the best long term interests of shareholders. Management Changes Various changes to the management of the group have occurred during the year which reflect both the strategy of business and the continuing need to strengthen the management team. As announced on June 19th 2006 Michael Prager joined the executive team as COO. His immediate focus was to re-energise the UK hotel business which he set about with vigour. Sales & Marketing, Operations, IT and Revenue Management are, after much intervention, now delivering demonstrable and sustainable benefits across the organisation. Following my announcement of David Cook's retirement in November the board appointed external consultants to identify and scrutinise a potential successor from within and outside of the company and after a lengthy process Michael Prager was appointed as CEO. Conducting this exercise in September allowed a suitable period of time for a thorough handover between David and Michael to take place during a turbulent time for the business. I am confident that Michael Prager is bringing renewed focus and energy to the CEO role and will not delay or diminish the tough decisions that need to be made to bring the company to the performance levels expected by the board. Michael Prager's previous position of COO has not been replaced as the new slimmed down PLC board and management board serve to provide leadership in all of the operating functions of the business in a flatter, more responsive organisation structure that also reduces our corporate cost base. Michael Prager and Paul Mitchell are the only executives on the Plc Board. Paul Mitchell continues in the role of CFO and it was through his achievement that we exited the European MFA on the favourable terms we did. Subsequent to the year end Peter Cashman, European Development and Asset Management Director resigned his position with the company following twenty two years of loyal service to Choice Hotels. At the same time Sam Marshall, Company Secretary, announced his retirement after an equally long period of service to the group. Further comments on the organisation structure and purpose appear in the Business Review but I am pleased on your behalf to offer my thanks and good wishes to David and Sam upon their retirement, Peter for his new direction and Michael and Paul for their continued hard work and dedication. Trading Trading for the year 2006 was very disappointing. With hindsight we had underestimated the time that it would take to win back lost customers and acquire new ones. The degree of change necessary in the sales and operating teams to deliver our planned growth also took longer to accomplish than anticipated. This, combined with the resumption of franchise fees to CHI, the disruption caused by our extensive building and rehabilitation works and a softer than expected final quarter have produced results significantly below expectation for the year. Your board will not in any way be complacent about the need to rapidly improve trading performance; however it believes that all of the actions being undertaken are right for the future success of the business and will bring short as well as long term benefits to the group. Outlook The first quarter of the current year has been encouraging with like for like operating results ahead of the same period in 2006. Good progress has been made in the cost reduction project announced in January. Whilst it is too early to take a firm view of 2007 your board is confident that the combined changes in physical asset, management and business focus will deliver the necessary platform for sustainable growth in 2007 and thereafter. Business Review Introduction As the Chairman has commented 2006 was a year of transition. This transition went far beyond the physical appearance of our hotels, vitally important though that is, and on to our customer mix, our pricing strategy, our management thinking - just about every aspect of our business. Our Business We own, operate via leases and management contracts and franchise hotels in the UK, France, Germany and Belgium. We also operate one of London's largest multi function conference and banqueting venues, the New Connaught Rooms (NCR). As at the end of 2006 our revenue profile was as follows: 65% UK hotels - existing 2% UK hotels - new 9% UK NCR 13% European hotels 3% UK franchising 3% Managed and other income 5% Discontinued operations Our hotels compete in what has traditionally been called the `mid market' which is being transformed by us and others into the `low cost' sector. We compete with the unbranded as well as the branded sector which is why a strong value proposition is so important to us. Our exit from European franchising allowed us to take a strategic look at what we need to be and where we want to be. The UK is our home and primary market. Outside of the UK we want to develop strong, branded hotels in countries/cities that have proven and growing demand for low cost hotel services and an economic cycle that is likely to see property values grow strongly over the next ten years. Strategy and Objectives We are focused on the premium limited service (Sleep & Comfort Inn) and mid market full service (Quality & Clarion) sectors. Our business objectives in 2006 and into 2007 are: * To drive significantly higher levels of revenue. * To improve the guest experience in all of our hotels. * To grow the Sleep product to plan. * To continually improve the quality of our asset base. In summary to operate superior performing businesses on high quality assets. During the last six months of 2006 we have fundamentally changed our sales approach so that every Owned, Managed and Leased hotel has a dedicated sales resource, accountable for their revenue as well as access to a team of territory based sales people serving the entire estate, each with specific, customer by customer sales plans for which they are accountable. Winning the sort of business that we require to meet and exceed our financial objectives has been a hard slog but is beginning now to pay dividends. We're winning high quality business against the competition at good rates which we can only do due to the quality of our hotels following their refurbishment and which is now beginning to flow through to results. We've taken a long look at our pricing this year and radically overhauled it. In simple terms we were previously following a pricing strategy of selling high early and cheap late leading to an uncompetitively high price for early bookers, then discounting heavily as the lead time got shorter. In the late booking environment in which hotels all operate, that resulted in hotels dropping rates when demand was picking up. In September 2006 we piloted the launch of a dynamic pricing model, one where the rate moves depending upon forecast demand and is based upon how early the customer books, similar to the low cost airlines. We continue to offer great value rates when we have rooms to sell and to guests who book early and agree not to amend or cancel their reservation. For those that require the flexibility of last minute booking with no restriction that too is available at a fair, but different, price. The pilot was rolled out across the estate subsequent to the year end in January 2007 since when results measured by revenue per available room (RevPAR) and revenue generation index (RGI) have been encouraging. Our operating team have focused relentlessly on improving the customer experience and converting revenues to superior levels of profit. Our customer satisfaction index which we started in September measures seven product and service areas and three `golden questions'. These all enveloping answers indicate an overall approval rating that bodes well for the future. Of all guests polled on checkout during December 2006 89.5% responded that `we offer good value for money' 89% responded that `they will return to the hotel when next in the area'. 88.9% responded that they would `recommend us to a colleague or friend' Our customers also tell us, pretty directly, what we don't do well - and we welcome that. We will continue to improve and maintain the fixtures, fittings and equipment in our guest rooms and our product:service in our restaurants and we're working on these now. With the aid of our mystery guest shopper and customer satisfaction index we now measure - and act on, how closely we comply with our own brand and product standards and how much (or little) customers think of what we're doing. To underpin our commitment to quality - a level of quality that will culminate in guests willingly us paying a premium over our competitors for staying with us, we rolled out our 100% Satisfaction Guarantee in the 4th quarter of 2006. Simply put if we don't meet our guests requirements fully and we can't put right within a reasonable period of time the cause of their dissatisfaction we'll refund that part of their stay. At the year end, the level of customer refunds was recorded at less than 0.3% of total revenue since the scheme's inception. We're doing OK with our customers. On the profit conversion side our entire cost base is under review, operating, non-operating and fixed. We are constantly looking at how to take cost out of the business without affecting the guest experience and that focus will not slacken. We opened Sleep Inns in Derby (January 2006) and Shrewsbury (August 2006) and both are contributing well to our income, a very good result for the first year of operation. Our development pipeline goes beyond those under construction. Whilst we won't release specific data on this as it is too commercially sensitive, at the time of writing, we have over 5000 rooms identified and being worked on by our development team. This is in addition to those hotels already in planning, legals or construction, referred to in the Chairman's statement. Risks and Uncertainties In common with other businesses in general and in the hospitality sector in particular we have a degree of risk that we seek to mitigate by various means including financial instruments, management good practice and insurance. We do not have a significant appetite for risk. As one of the smaller companies in our sector we seek to be a fast follower, more than a pioneer. That should not imply any diminution in our attitude towards innovation; what we like to do is allow others to pioneer new concepts then, if successful, adopt them, improve them and deploy them quickly, e.g. Sleep Inn. Broadly our risk profile divides into three classes: Financial Operational Environmental Our financial risk is limited to changes in the rate of interest on our borrowings which we mitigate via interest rate hedge instruments where and when appropriate. The Group endorses the internal control guidance for directors on the combined code and has established a system of internal financial controls to safeguard the Group's assets and ensure that proper accounting records exist. Operationally, along with all of our competitors, we are exposed to the risk of business downturns from the effects of global economic and security concerns. We do not consider ourselves significantly exposed in this area as we are not overly dependant on long haul international business. We are also exposed to downturns in the economy and `belt tightening' amongst our corporate and consumer direct segments along with all others. The positioning of our product lines at premium limited service and mid market full service mitigates this risk to the extent that in a downturn we usually pick up more business trading down from the 4 star/1st class sector than we lose to the budget sector. We see no reason for that to change. During the year we have put a great deal of effort into restructuring our cost base to increase the percentage of variable to fixed cost so that we can trim our costs in line with the volatility in our revenues and this work continues. The most significant area of operational risk to which we are exposed is our leases. Long leases are our preferred business model. We earn a substantial premium for leasing rather than just managing hotels; on average we earn nearly three times more for a leased hotel than we do for a managed hotel. Leases are rent and rent has to be paid regardless of income, it's a fixed cost. We seek to mitigate this risk by following a vigorous process that includes an independent feasibility study and the use of sophisticated demand modelling techniques as well as reviews by both the management and PLC Boards prior to signing new lease agreements. We also maintain good landlord relationships which allow open and frank discussions on those occasions where leases become problematic due to e.g. shifting demand patterns. We believe the risk:reward profile for our leased hotels to be significantly wealth creating for our shareholders. Environmentally we are exposed to a range of health and safety issues as well as the effect of changing government policy on matters such as employee legislation and taxation. We conduct health and safety, water quality, fire safety and food hygiene audits via an independent contractor at every hotel three times a year with one of those visits being unannounced. Where we identify problems we review our policies and procedures to minimise future risk, in so doing continually seeking to reduce our insurance premiums which we have to cover all areas of business, public and employee liability from which we cannot eliminate the associated risks. We are an active participant within the British Hospitality Association, which amongst other things lobbies government on behalf of the industry; the recent shelving of a proposed bed tax being one example of the industry body influencing government towards an eminently sensible conclusion. Performance and Measurement As at the year end our UK hotels revPAR at £24.73 (on a like for like basis) was 1.2% behind last year. Total revenue per available room (TrevPAR) at £44.97 declined by 4.8%. This was offset by the performance of new hotels opening where revPAR at £28.56 was 15.5% higher than for existing hotels. Operating margins of in the UK hotels (like for like) reduced by 4.9 percentage points to the prior year as a result of minimum wage increases of 4.6%, energy cost increases of 16% and one-off restructuring costs in the final quarter. At the same time operating margins in new hotels were 6.3 percentage points higher than the existing estate. The New Connaught Rooms, our multi function conference and banqueting facility in central London recorded revenues 1.4% ahead of prior year but experienced a reduction of 2.8% points in gross operating profit margin. In Europe revenue from our leased hotels continued to show improvement. The French hotels grew RevPAR by 2% to £20.96, Belgium by 17% to £19.38 and Germany by 8% to £18.15. During 2006 we opened two new hotels in Germany, both in Munich. These hotels are generating a RevPAR of £32.32, significantly higher than our existing hotels in Germany. We now measure our performance against 34 key performance indicators (KPIs) all of which flow up in accountability to a Management Board member and all of which are reviewed and reported upon monthly. Where industry level data is available this is incorporated. We will, in future interim and full year statements report on certain KPI achievements, once we have established meaningful baseline data against which we can benchmark performance. Organisation During the six months from June 2006 we carried out a root and branch review of our business operations and laid the foundation for future, profitable growth. During this period * The number of executive directors has reduced from four to two. * 75% of the management board are new to the company * 36% of the hotel General Managers are new to the company * 70% of the sales team are new to the company I have to report however that the operational changes made have not yet flowed through to the financial results. By any standards 2006 had a very disappointing outturn. The biggest contributor to this was a shortfall in revenue as a combination of unsettled trading in the first half of the year, a significant proportion of inventory being unavailable for sale during the extensive renovations that we undertook during the year and a softer than expected fourth quarter at a time when we were undergoing widespread changes in the management team. In addition to this we incurred the resumption of fees to CHI, of £2.2 million, and a higher than normal level of restructuring costs, all of which combined in the results now presented. The one thing that I will say to shareholders in mitigation is that everything we have done is necessary to provide for the long term prosperity of the business and delaying any of the changes we have made would, in our opinion, have made matters worse rather than better. We have achieved a great deal in organisational, product and process terms but these improvements have yet to flow through to financial performance, in line with our commitment to shareholders at the time of the equity raising. These results are not acceptable to me, the rest of the management team or the Board and we are committed, without reservation, to improving them to an acceptable level of return to shareholders. Finally, I want to thank all of my colleagues, past and present, for their commitment and hard work and in particular David Cook, my predecessor, for his assistance and support during the handover period. I am fully cognisant that once again shareholders have been presented with less than acceptable results. I have no doubt about the task that I and the management team face in bringing this business to the levels of performance rightfully expected of it and I assure shareholders that we will spare no effort nor tolerate any delay in so doing. Financial Review Trading Summary Revenue for the Group was £79.8 million, an increase of £0.6 million on 2005 (£ 79.2 million). Operating loss was £2.8 million, down on 2005 profit (£4.6 million). Financial Expenses The interest charge for the year was £5.1 million reflecting a marginal increase of £0.1 million over 2005. Profit after Tax The Group made a loss after tax of £7.9 million, a reduction of £8.5 million over 2005 (profit of £0.6 million). Taxation There is no current UK Corporation Tax charge. The non-payment of a dividend will enable the Company to utilise more surplus ACT against mainstream corporation tax in the future than would otherwise have been possible, giving the Company an effective cash tax rate of 10% for the immediate future. Earnings Basic and diluted loss per share (EPS) of 9.3 p shows a decline of 10.9 p when compared with the earnings per share of 1.6 p in 2005. The number of shares in the EPS calculation in 2006 was 85.1 million (2005: 38.7 million). Cashflow The operating activities absorbed £9.9 million prior to capital expenditure of £8.3 million. This compared to generating 0.5 million and £5.1 million of capital expenditure in 2005. Serviced Offices Subsequent to the 2005 year end it was noted that there was a contingent liability resulting from the disposal of the serviced office division. Resolution is nearing completion and the accounts include a charge of £0.3m. Market Capitalisation In January 2006 the Group raised £18.6 million net costs from a share placing and open offer of 48.8 million shares at £0.41. These proceeds are in the process of being reinvested in upgrading the existing hotels and accelerating the roll out of Sleep Inn. There are now 87.5 million issued shares. Treasury Group treasury matters are governed by policies and procedures approved by the Board. The primary objectives of the treasury function are to provide competitively priced funding for the activities of the Group and to identify and manage financial risks, including exposures to movements in interest and foreign exchange rates. Interest rate swaps and other financial instruments are used when considered appropriate. It is not however, the policy of the Group to enter into speculative transactions. The utilisation and availability of funding facilities is monitored on an ongoing basis. Consolidated Income Statement for the year ended 31 December 2006 (Unaudited) Year ended Year ended 31 December 31 December 2006 2005 Continuing Discont- Total Continuing Discont- Total operations inued operations operation inued operation Notes £m £m £m £m £m £m Revenue 3,4 76.1 3.7 79.8 75.2 4.0 79.2 Cost of sales (32.8) - (32.8) (31.8) - (31.8) Gross profit 43.3 3.7 47.0 43.4 4.0 47.4 Administrative expenses - Property rentals (14.9) (0.1) (15.0) (13.7) (0.1) (13.8) - Other (29.7) (5.1) (34.8) (25.7) (3.3) (29.0) (44.6) (5.2) (49.8) (39.4) (3.4) (42.8) Operating (loss) / 5 (1.3) (1.5) (2.8) 4.0 0.6 4.6 profit Financial expenses 6 (5.1) - (5.1) (5.0) - (5.0) Loss before tax (6.4) (1.5) (7.9) (1.0) 0.6 (0.4) Income tax 7 - 1.0 (Loss) / profit for the (7.9) 0.6 year attributable to the equity holders of the parent company (Loss) / earnings per share Basic (loss) / 8 (7.5)p (1.8)p (9.3)p 0.0p 1.6p 1.6p earnings per share Diluted (loss) / 8 (7.5)p (1.8)p (9.3)p 0.0p 1.6p 1.6p earnings per share The directors have recommended no final dividend (2005-nil) Consolidated Balance Sheet at 31 December 2006 (Unaudited) December December Notes 2006 2005 £m £m Non current assets Property, plant & equipment 9 98.6 87.1 Deferred tax assets 4.9 4.1 103.5 91.2 Current Assets Inventories 1.8 1.8 Trade and other receivables 10 15.0 14.2 Cash and cash equivalents 0.9 0.7 17.7 16.7 Total assets 121.2 107.9 Current liabilities Financial liabilities (4.7) (21.5) Trade and other payables 11 (13.6) (18.6) Obligations under finance leases (2.5) (1.7) Current tax payable (0.7) (0.7) (21.5) (42.5) Total assets less current 99.7 65.4 liabilities Non current liabilities Financial liabilities (16.0) - Debenture (14.0) (14.0) Obligations under finance leases (25.3) (18.7) Deferred tax liabilities (6.3) (5.5) (61.6) (38.2) Net Assets 38.1 27.2 Capital and reserves 12 Issued share capital 8.8 3.9 Share premium 19.1 5.4 Reserves - (0.2) Retained earnings 10.2 18.1 Equityattributable to the equity 38.1 27.2 holders of the parent company Consolidated Cashflow Statement for the year ended 31 December 2006 (Unaudited) Year ended Year ended 31 December 31 December 2006 2005 £m £m £m £m Cash flows from operating activities (Loss) / profit for the period (7.9) 0.6 Adjustments for: Interest charged 5.1 5.0 Taxation charged / (credited) - (1.0) Depreciation and amortisation charges 3.9 3.0 (Increase) in inventories - (0.2) (Decrease) / Increase in trade and (0.8) (4.5) other receivables (Decrease) / increase in trade payables (6.2) 2.7 Cash generated from operations (5.9) 5.6 Interest paid (4.0) (4.9) Income taxes paid - (0.2) Net cash flow from operating activities (9.9) 0.5 Cash flows from investing activities Acquisition of property, plant and (8.3) (5.1) equipment Receipts from disposal of discontinued 0.3 - business Net cash used in investing activities (8.0) (5.1) Cashflows from financing activities Proceeds from issue of new ordinary 20.0 0.8 shares less costs of issue of new ordinary (1.4) - shares Repayment of bank loans (2.5) (1.3) Proceeds from new finance leases 0.7 0.9 Repayment of obligations under finance (0.4) (0.4) leases Net cash used in financing activities 16.4 - Net decrease in cash and cash (1.5) (4.6) equivalents Cash and cash equivalents at beginning 0.7 5.3 of year Cash and cash equivalents at end of (0.8) 0.7 year Cash and cash equivalents comprise: Cash and cash equivalents in current 0.9 0.7 assets Bank overdraft (1.7) - (0.8) 0.7 Consolidated statement of changes in equity (Unaudited) Year ended Year ended 31 December 31 December 2006 2005 £m £m Balance at beginning of year 27.2 26.0 Changes in equity Movement in fair value of hedging 0.2 (0.2) derivatives in period Issue of new shares net of issue costs 18.6 0.8 Net income recognised directly in 18.8 0.6 equity (Loss) / profit for the year (7.9) 0.6 Total recognised income and expense for 10.9 1.2 the period Balance at end of yearattributable to 38.1 27.2 the equity holders of the parent Notes to the Unaudited Preliminary Announcement For the year ended 31 December 2006 1. Basis of Preparation The Group is preparing its financial statements in accordance with IFRS as adopted by the European Union. The unaudited preliminary announcement was approved by the board on 23 April 2007. The comparative figures for the financial year ended 31 December 2005 are not the company's statutory accounts for that financial year. Those accounts have been reported on by the company's auditors and delivered to the registrar of companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 237(2) or (3) of the Companies Act 1985. 2. Accounting Policies During the year, the following new standards, amendments and interpretations have been adopted but have had no effect on the Group: Amendments to IAS39 Financial instruments: Recognition and Measurement - the fair value option, Amendments to IAS39and IFRS 4: Financial Guarantee contracts, IFRIC 4 determining whether an arrangement contains a lease and IFRIC 6 liabilities arising from participating in a specific market - Waste Electrical and Electronic equipment. All other new standards, amendments and interpretations that are available for early adoption but have not been adopted early are not expected to have an impact on the Group. * Discontinued operation In November 2006, the Group disposed of its entire European Franchise Operation. The Group was committed to dispose of this operation following a strategic review and as a result of the commencement of fees payable to Choice International in 2006. No gain or loss arose on the measurement to fair value. In November 2006, the operation was sold for £0.3m cash. There was no attributable tax on this transaction, leaving no gain after tax. During the year ended 31 December 2006, the European Franchise Operation had cash outflows from operating activities of £1.5m compared to an inflow of £0.6m in 2005. Effect of the disposals on individual assets and liabilities 2006 2005 £m £m Property, plant and equipment 0.1 0.1 Stocks - - Trade receivables 0.9 1.0 Other receivables 0.1 0.1 Employee benefits (0.2) (0.1) Trade payables (0.6) (0.6) Net identifiable assets and liabilities 0.3 0.4 Consideration received, satisfied in cash 0.3 Net cash (inflow) 0.3 4 Segmental Information Analysis by activity Year ended 31 December 2006 Owned & Managed Franchise Discontinued Total leased hotels & operations operation1 hotels & other banqueting (UK) £m £m £m £m £m Revenue 72.0 1.6 2.5 3.7 79.8 Segment result 1.8 1.6 (1.9) (1.2) 0.3 Unallocated administration (3.1) costs Operating loss (2.8) Financial expenses (5.1) Loss before taxation (7.9) Capital additions 15.5 - - - 15.5 Depreciation 3.9 - - - 3.9 Segment Assets 113.4 1.5 0.9 - 115.8 Unallocated corporate 5.4 assets Total assets 121.2 Segment liabilities (26.4) - - - (26.4) Unallocated corporate (56.7) liabilities Total liabilities (83.1) 1. The discontinued operation relates to the European franchise business 4 Segmental Information (continued) Analysis by activity Year ended 31 December 2005 Owned & Managed Franchise Discontinued Total leased hotels & operations operation1 hotels & other banqueting (UK) £m £m £m £m £m Revenue 71.9 1.4 1.9 4.0 79.2 Segment result 4.7 1.4 0.3 0.6 7.0 Unallocated administration (2.4) costs Operating profit 4.6 Financial expenses (5.0) Loss before taxation (0.4) Capital additions 5.2 - - - 5.2 Depreciation 3.0 - - - 3.0 Segment Assets 97.7 1.5 0.6 1.2 101.0 Unallocated corporate 6.9 assets Total assets 107.9 Segment liabilities (32.5) (0.8) - - (33.3) Unallocated corporate (47.4) liabilities Total liabilities (80.7) 1. The discontinued operation relates to the European franchise business 4 Segmental Information (continued) Analysis by geographical location Year ended 31 December 2006 U K France & Germany1 Discontinued Total Belgium1 operation2 £m £m £m £m £m Revenue 65.2 5.6 5.3 3.7 79.8 Segment result 1.3 0.2 - (1.2) 0.3 Unallocated administration (3.1) costs Operating loss (2.8) Capital additions 15.5 - - - 15.5 Depreciation 3.9 - - - 3.9 Segment Assets 115.0 4.2 2.0 - 121.2 Segment liabilities (80.5) (1.9) (0.7) - (83.1) 1. Non UK businesses relate to continuing hotel operations 2. The discontinued operation relates to the European franchise business 4 Segmental Information (continued) Analysis by geographical location (continued) Year ended 31 December 2005 U K France & Germany1 Discontinued Total Belgium1 operation2 £m £m £m £m £m Revenue 65.3 5.7 4.2 4.0 79.2 Segment result 6.0 0.4 - 0.6 7.0 Unallocated administration (2.4) costs Operating profit 4.6 Capital additions 5.0 0.1 0.1 - 5.2 Depreciation 2.8 0.2 - - 3.0 Segment Assets 102.2 3.3 1.2 1.2 107.9 Segment liabilities (77.1) (2.4) (1.2) - (80.7) 1. Non UK businesses relate to continuing hotel operations 2. The discontinued operation relates to the European franchise business 5. Operating (loss) / profit 2006 2005 £m £m This is arrived at after charging: Depreciation 3.9 3.0 Amounts receivable by the auditors and their 0.2 0.2 associates in respect of: - Audit of financial statements of 0.2 0.2 subsidiaries - Other services relating to taxation 0.2 0.1 Property Rentals 15.0 13.8 6. Financial expenses 2006 2005 £m £m Debenture Interest (1.6) (1.6) Bank Loans & Overdrafts (1.3) (1.6) Finance Lease Interest (2.2) (1.8) (5.1) (5.0) 7. Income tax 2006 2005 £m £m UK Corporation Tax - (0.2) Overseas tax - 0.2 Deferred tax - 1.0 - 1.0 The group has unrecognised taxable trading losses to carry forward of £6.6m (2005 - £3.2m) and unrecognised capital losses to carry forward of £4.2m (2005 - £4.2m). 8. (Loss) / earnings per share The basic (loss) / earnings per share is based on a loss after tax of £7.9m (December 2005 - £0.6m profit) and 85,143,000 shares (December 2005 - 38,676,000 shares) being the average number of shares in issue during the year. There are no potentially dilutive shares in issue. 9. Property, plant and equipment Freehold & Furniture, Total leasehold fixtures & properties equipment & motor vehicles £m £m £m Cost or valuation At 1 January 2006 81.2 19.2 100.4 Additions 12.3 3.1 15.4 Disposals 0.0 (0.1) (0.1) At 31 December 2006 93.5 22.2 115.7 Depreciation At 1 January 2006 7.8 5.5 13.3 Provided for the period 2.0 1.9 3.9 Eliminated on disposals 0.0 (0.1) (0.1) At 31 December 2006 9.8 7.3 17.1 Net Book Value At 31 December 2006 83.7 14.9 98.6 At 31 December 2005 73.4 13.7 87.1 10. Trade and other receivables 2006 2005 £m £m Trade receivables 8.8 7.5 Other receivables 2.6 2.2 Restricted bank balances - 0.1 Prepayments 3.6 4.4 15.0 14.2 There are no debtors due after more than one year. 11. Trade and other payables 2006 2005 £m £m Trade payables 7.3 7.9 Other payables 0.6 1.3 Tax and Social Security 1.0 2.5 Accruals 4.7 6.9 13.6 18.6 12. Reserves Share Share Hedging Retained Total Capital Premium Reserve Earnings £m £m £m £m £m Balance at 31 December 3.9 5.4 (0.2) 18.1 27.2 2005 Movement in fair value of - - 0.2 - 0.2 hedging derivatives in year Issue of new shares 4.9 13.7 - - 18.6 Loss for the year - - - (7.9) (7.9) Balance at 31 December 8.8 19.1 - 10.2 38.1 2006 In January 2006 the company issued 48,780,488 new Ordinary Shares of 10p each for a consideration of 41p each under a Placing and Open Offer increasing the share capital to 87,522,405 Ordinary Shares. 13. Use of estimates and future performance The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Certain statements, which appear in a number of places throughout this document, may constitute "forward-looking statements" which are all matters that are not historical facts including anticipated financial and operational performance, business prospects and similar matters. A variety of factors could cause the Group's actual results and expectations to differ materially from the anticipated results or other expectations expressed in the Group's forward-looking statements. The statements, if any, are illustrative only and do not amount to any representation that they will be achieved as they involve risks and uncertainties and relate to events and depend upon circumstances, which may, or may not, occur in the future and there can be no guarantee of future performance. END
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