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RNS
Elegant Hotels Group PLC  -  EHG   

Final Results

Released 07:00 09-Jan-2018

RNS Number : 3203B
Elegant Hotels Group PLC
09 January 2018
 



 

 

 

9 January 2018

 

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

 

Preliminary Unaudited Results for the Year Ended 30 September 2017

 

A year of decent progress in the context of a changed market

 

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 preliminary unaudited results for the year ended 30 September 2017.  The Group's audited results for the year ended 30 September 2017 will be posted to shareholders in due course, at which point a further announcement will be made.

 

This was the first full year of a rebased Sterling/USD exchange rate. As a result, given Elegant Hotels' rates are priced in USD while the majority of its customers are from the UK, it has been necessary for the Group to discount rates at certain of its properties on a targeted and tactical basis. This has inevitably affected the profit margins of the business, but the Group believes that the pricing environment is now much more stable. As such, these market conditions should be seen as the new normal.

 

Unaudited Financial Highlights

 

·     Revenue up 5.1% to $59.9 million (2016: $57.0 million), reflecting an improvement in occupancy and the addition of Waves Hotel & Spa to the portfolio

·     RevPAR (revenue per available room) down 4.6% to $227 (2016: $238)

·     ADR (average daily rates) down 6.3% to $354 (2016: $378)

·     Adjusted EBITDA* down 7.6% to $18.1 million (2016: $19.6 million)

·     Profit after tax down 6.1% to $9.2 million (2016: $9.8 million)

·     Adjusted EPS of 10.1 cents per share (2016: 13.1 cents per share)

·     Implied Net Asset Value (NAV) of 163 pence per share (218 cents per share)

·     Year-end net debt of $73.1 million (2016: $61.8 million)

·     Proposed final dividend of 1.75 pence per share, resulting in a full year dividend of 5.25 pence per share

 

Operational Highlights                         

 

·     Successful acquisition, refurbishment and reopening of Treasure Beach Hotel in Barbados, bringing room count up 6.3% to 588 (2016: 553)

·     Signed management contract for Hodges Bay Resort & Spa in Antigua, the Group's first property outside Barbados

·     Agreement signed in March to provide sales and marketing services to The Landings Resort & Spa in St. Lucia

·     Closure and renovation of The House as part of the ongoing strategy of refurbishing, repositioning and repricing the portfolio

·     Occupancy increased to 63.9% (2016: 62.9%)

 

* 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.

†based on an exchange rate of £1 : $1.34

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:

 

"The Group delivered a solid performance in 2017 against a background of changed market conditions. The team remains firmly focused on delivering our strategy, and we are pleased with the operational progress that has been made during the year. We have continued to strive for day-to-day excellence, and have invested in our people and systems to ensure that our hotels continue to provide exceptional guest experiences. We have also successfully expanded our sales and marketing presence in the US in order to drive further growth in visitor numbers from that market.

 

During the year we acquired another hotel in Barbados, in the form of Treasure Beach.  We also expanded outside of the island for the first time through a management contract and a sales and marketing agreement on hotels in Antigua and St Lucia, respectively. 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 FY18 and beyond."

 

 

Analyst conference call

A presentation and conference call for analysts and institutional investors with the Company's management team will take place at 9am (GMT) today, the details of which are as follows:

International access

+44 (0) 20 3003 2666   

UK Toll Free

0808 109 0700 

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

Zeus Capital Limited (NOMAD and Joint Broker)

Dan Bate / Andrew Jones / John Goold

 

+44 (0) 203 829 5000



Liberum Capital Limited (Joint Broker)

Clayton Bush / Chris Clarke / Dominik Götzenberger 

 

+44 (0) 203 100 2222

 

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 2017, the Group achieved revenue of $59.9 million and EBITDA before non-recurring items of $18.1 million.

 

Together, the Group's seven existing hotels - Colony Club, Tamarind, The House, Crystal Cove, Turtle Beach, Waves Hotel & Spa and Treasure 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

As expected, market conditions in Barbados remained challenging throughout the 2017 financial year. While arrivals to Barbados were up 6.4% year-on-year for the January to October 2017 period (2016: 5.5%), this was the first full year of a rebased Sterling/USD exchange rate, which has had a negative impact on our business: the Group's rates are priced in USD while the majority of customers are from the UK (around 75% on a room nights basis). This affects both the rates the Group is currently able to achieve at some of its properties, as well as demand for Barbados as a luxury tourist destination.

Recent data from the Barbados Tourism Marketing Inc shows that stay-over tourist arrivals from the UK have grown 0.7% year-on-year for January to October 2017, compared to growth of 2.2% for 2016. In addition, demand for luxury accommodation from UK travellers has declined despite the overall increase in numbers, and the villa and value market have tended to benefit from increased visitor arrivals.

However, we remain confident in the underlying attractiveness of Barbados for UK travellers, given its reputation as a safe destination and the fact that it is fortunate to be located south of the hurricane belt. Barbados is very rarely affected by hurricanes and, during the recent hurricane season, we experienced no disruption at the hotels and saw no material impact on bookings.

In addition to daily flights from London Gatwick and Manchester by a number of different carriers, Virgin is running a new twice-weekly service direct from London Heathrow from December 2017 to April 2018. There are also significant opportunities outside the UK market which the Group is working to capture, as set out further below. In particular, US arrivals to Barbados were up 14.2% year-on-year (January to October) compared to an 11.5% increase in the prior year.

Review of FY 2017 performance against strategy

Revenue - pricing and occupancy

Revenue for 2017 was $59.9 million, up 5.1% on the prior year (2016: $57.0 million). This reflected an improvement in occupancy in H2 2017, partially due to the timing of Easter (which fell in H2 in 2017, as opposed to H1 in 2016). Occupancy was 63.9% for the Group, up from 62.9% in the prior year. However, ADR fell 6.3% in the period from $378 to $354. This partially reflects the success of Waves Hotel & Spa, which contributed strongly to occupancy but had a lower average rate, especially in H1. Excluding Waves, ADR would have been $365, a reduction of 3%.

During the 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 drive occupancy in the context of the rebased market. ADR was maintained at The House and Colony Club, our properties with the highest rates. For these properties, maintaining rates has been a strategic objective in order to maintain differentiation among the hotels in the portfolio. In 2018, we intend to continue to review pricing strategies for each property to ensure that we effectively balance occupancy and rate.

During the year, we used targeted promotions to boost occupancy during slower periods. Over the high demand periods, our specialised 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.

Target market and go-to-market strategy

Throughout 2017, the Group expanded its target market focus in response to the weaker UK market conditions. The sales teams in both the UK and the US were bolstered, and during the year the Group launched a new website to target direct bookings from the US. In addition, new contracts were signed with tour operators in the US and Canada, and the Group hosted a number of familiarisation trips for US operators. As a result of this, and the addition of Waves in 2016, the proportion of bookings from North America rose from 14% in 2016 to 17% in 2017.

There are also both opportunities and challenges in relation to changes in the demographic of visitors. The number of older, repeat guests is declining so attracting new guests is an area of growing focus. An increasingly important market for us is the millennial segment, including families and "double income no kids", who tend to value experiences and sustainability and for whom repeat visits are less common. As a result, when we are refurbishing our properties we continually focus on appealing to this segment as well as our more established guest-type.

In this regard, the marketing of Waves as a contemporary all-inclusive spa resort has been highly successful, and resulted in an increase in the number of guests from the millennial category. Given the success of this offering, we have incorporated a new spa into the refurbished House, and continue to assess additional spa opportunities throughout the Group.

Cost control

Implementing cost control measures has been a key area of focus for the Group during 2017 given the pressure on rates. This has involved targeted streamlining and centralisation of back office functions, and the set-up of a central warehousing function which was operational from the end of calendar 2017. The impact of these measures is expected to be seen in the financial year ending 30 September 2018.

Existing portfolio enhancement

We are continuously looking to improve the profitability of our hotels with our focussed three-step program of refurbishing, repositioning and repricing. 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 4% of each hotel's revenue, we spent approximately $1.5m on special projects, as planned. The most significant project undertaken during the year was the refurbishment of the public areas at The House, as well as the addition of a new spa. The House was closed from mid-August to the beginning of October, and since its re-opening has seen a 9% increase in business-on-the-books, driven by a stronger rate, compared to the same time in 2016.

In addition, we added a coffee shop and ice cream parlour to Turtle Beach and a coffee and wine bar to Crystal Cove. These additions, along with targeted discounting, resulted in both of these hotels increasing their occupancy compared to the prior year, and enhanced our offerings compared to new all-inclusive competitors on the island.

The results of Waves Hotel & Spa, following the post-acquisition refurbishment, also illustrate the success of this strategy. Waves' occupancy was the highest in the Group at 73%, and it maintained ADR significantly in excess of pre-acquisition levels.

Expansion

During 2017, we acquired Treasure Beach, a 35 suite hotel located next to the Tamarind Hotel on the 'Platinum Coast' of Barbados. At the time of the IPO in 2015 we set out our acquisition plan - to add hotels that complement our portfolio and that benefit from the Group's scale. Treasure Beach is a great geographic fit, as well as meeting our criteria of acquiring under-performing hotels that can be refurbished, repositioned and repriced in line with our enhancement strategy. It reopened in December 2017 following $2.8m of refurbishments as a European-plan adults only resort.

As a result of our acquisition strategy, our total room count is now 588 compared to 483 at the time of the IPO. This is more than twice the nearest competitor on Barbados and gives the Group significant influence and leverage with tour operator partners.

During the year, the Group added two properties to its portfolio via a management contract and a sales and marketing contract. In October 2016, the Group entered into an agreement to manage Hodges Bay Resort, a new 122-room luxury hotel in Antigua. The construction of Hodges Bay is currently taking longer than expected but we are pleased that the current owners are ensuring that this product is built to the highest standards. In March 2017, the Group added The Landings Resort and Spa, an 85 villa property in St. Lucia, with an agreement to provide a variety of services across the areas of sales, marketing, reservations, revenue management and public relations across all key markets. The Landings contract is progressing well and enables us to expand our sales and marketing footprint.

The Group is continually assessing potential acquisition targets both in Barbados and throughout the wider Caribbean. We see a number of compelling opportunities ahead of us, and are constantly managing our cash flow and debt availability in order to ensure that we can take advantage of them as they present themselves. The Board is at an advanced stage of discussions with one particular opportunity and hopes to make an announcement shortly.

Dividend

Elegant Hotels set out its dividend policy at the time of IPO in May 2015. Since then, we have paid cumulative dividends of 14 pence per share, while seeing a significant shift in the market largely due to the devaluation of Sterling compared to the US dollar. We have also taken advantage of multiple expansion and strategic opportunities including Waves Hotel & Spa and Treasure Beach.

Our objective is to become one of the leading hotel groups in the Caribbean in order to deliver sustainable investor returns. To achieve this, the Group must reinvest in its business model and ensure that it is well placed to capitalise on the numerous opportunities that we see for expansion.

Given the current market opportunities and the need to reinvest in our properties in an increasingly competitive market, the Board is recommending a reduction in our final dividend to 1.75p for the year ended 30 September 2017 from 3.5p in the prior year. This equates to a full year dividend of 5.25p for the year ended 30 September 2017 versus 7.0p in the prior year. The final dividend is subject to the approval of the Company's shareholders and will be paid on 7 March 2018 to shareholders on the register on 26 January 2018. The Company's ordinary shares will become ex-dividend on 25 January 2018.

Going forward, the Group intends to pay a full year dividend of 4.0p for the financial year ending 30 September 2018, split into a one third interim payment and two thirds final dividend payment. As always, the payment of dividends will be subject to the discretion of the Board and to the Company having sufficient distributable reserves.

People and Board

We were pleased to welcome two new additions to our Board this year. Jeff Singleton joined the Group as Chief Financial Officer in December 2016 and was appointed to the Board in March 2017. Jeff brings significant industry and listed-company experience and since his arrival has focused on restructuring the finance function and improving risk management, internal controls and management information. Luke Johnson joined the Board as a Non-Executive Director in May 2017, adding his significant hospitality experience and business skills to the Board.

The success of our hotels is highly dependent on our fantastic team of engaged service staff, who aim to deliver friendly, personal, best-of-the-Caribbean service to our guests. We have continued to invest in our staff this year, with various training and development opportunities and the continuation of our health and happiness programs.

Outlook

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 2018 and beyond.

 

FINANCIAL REVIEW

The financial information for the year ended 30 September 2017 is unaudited. The comparative figures for the year ended 30 September 2016 are restated to adjust the fair value acquisition accounting relating to the Waves acquisition and are unaudited.

Overview

There has been a good recovery in revenue in H2 2017 which has continued into 2018. However, lower rates at some of our properties have continued to put pressure on EBITDA and, as a result, cost control in the Group has been a key focus. Specific activities in this area have included the streamlining and centralising of the Finance functions in order to achieve economies of scale, as well as enhancing the Group's risk management framework.

Gross profit

Gross profit for the year was $35.5m (2016: $35.1m), while gross margin reduced from 61.6% to 59.3%, due to a combination of lower rates and a greater relative contribution from lower-margin H2 revenue compared to 2016.

Recurring selling, general and administrative expenses

Selling, general and administrative expenses before exceptional items and bargain purchase gain increased to $22.9m (2016: $20.1m), principally reflecting the addition of Waves Hotel & Spa. Additionally, the Group increased its corporate costs compared to the prior period with the appointment of a Chief Financial Officer and Group Operations Director. Both of these appointments were necessary in order to fulfil the Group's strategic expansion strategies.

Depreciation and amortisation increased from $3.2m to $4.1m primarily due to the acquisition of Waves in the prior year.

Selling, general and administrative expenses before exceptional items and bargain purchase gain were 38% of revenue in 2017 (2016: 35%). This reflects the above increased costs as well as the inclusion of Waves, which as an all-inclusive property has a lower operating profit margin, and the flow through effect of rate reductions.

 

Exceptional costs and bargain purchase gain

Exceptional costs were $1.1m in 2017 compared to $2.2m in the prior year. Included within exceptional costs is 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. Amounts relating to share-based payments made on IPO have been treated as exceptional as they represent a significant and one-off event for the Group.

Acquisition and other exceptional costs were $1.7m in 2017 and $2.0m in 2016, reflecting the acquisitions of Treasure Beach and Waves respectively as well as other exceptional costs relating to restructuring costs and professional fees. The Group also recognised a bargain purchase gain in 2017 of $1.3m related to the acquisition of Treasure Beach.

The Group presents measures of Adjusted EBITDA, Adjusted profit before tax and Adjusted EPS.  These measures exclude exceptional costs, non-exceptional share-base payment costs and bargain purchase gain.   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. 

Reconciliation of unaudited Adjusted Profit Before Tax and unaudited adjusted Earnings per share


Reported

Adjustments

Adjusted

Reported

Adjustments

Adjusted

2017

2017

2017

2016

(restated*)

2016

(restated*)

2016

$m

$m

$m

$m

$m

$m

Gross profit

35.5

-

35.5

35.1

-

35.1

Selling, general and admin expenses

(22.7)

0.1

(22.6)

(22.3)

2.4

(19.9)

Other operating income

1.0

-

1.0

1.1

-

1.1

Operating profit

13.8

0.1

13.9

14.0

2.4

16.3

Financial expenses

(2.8)

-

(2.8)

(2.2)

-

(2.2)

Profit before taxation

11.0

0.1

11.1

11.8

2.4

14.2

Taxation

(1.8)

(0.3)

(2.1)

(2.0)

(0.5)

(2.5)

Profit after tax

9.2

(0.2)

9.0

9.8

1.9

11.7

Weighted average number of shares - basic (m)

     88.8

-

    88.8

    88.8

 -

     88.8

Weighted average number of shares - diluted (m)

     89.1

-

    89.1

    89.0

-

     89.0

Basic earnings per share (cents)

     10.3

(0.2)

    10.1

    11.0

2.1

     13.1

Diluted earnings per share (cents)

     10.3

(0.2)

    10.1

    11.0

2.1

     13.1

* The comparative figures have been restated to adjust the fair value acquisition accounting relating to the prior year acquisition. See note 2.1.3.

 

Reconciliation of unaudited Reported and unaudited Adjusted EBITDA


Reported

Adjustments

Adjusted

Reported

Adjustments

Adjusted


2017

2017

2017

2016

(restated*)

2016

(restated*)

2016


$m

$m

$m

$m

$m

$m

Revenue

59.9

-

59.9

57.0

-

57.0

Operating profit

13.8

0.1

13.9

14.0

2.4

16.3

Depreciation and amortisation

4.1

-

4.1

3.2

-

3.2

Impairment of short-term investments

0.0

-

0.0

-

-

-

Loss on disposal of assets

0.0

-

0.0

-

-

-

EBITDA

18.0

0.1

18.1

17.2

2.4

19.6

EBITDA margin

30.1%


30.2%

30.2%


34.4%

* The comparative figures have been restated to adjust the fair value acquisition accounting relating to the prior year acquisition. See note 2.1.3.

 

Reconciliation of unaudited Operating profit to unaudited Adjusted operating profit


2017

2016

(restated*)

$m

$m

Operating profit

13.8

14.0

Exceptional costs

1.1

2.2

Non-exceptional share-based payment charges

0.3

0.2

Bargain purchase gain

(1.3)

-

Adjusted operating profit

13.9

16.3


* The comparative figures have been restated to adjust the fair value acquisition accounting relating to the prior year acquisition. See note 2.1.3.

 

Other operating income

Other operating income of $1.0m (2016: $1.1m) 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 $18.1m (2016: $19.6m), 7.6% lower than the prior period, and Adjusted EBITDA margin was 4.2 percentage points lower than the prior period at 30.2%. This reflects the above-mentioned movements. Daphne's contributed approximately $500k to the decrease in Adjusted EBITDA, predominantly relating to its closure for renovation, with the closure of The House accounting for approximately $250k.

 

Finance expenses

Interest on loans increased in the current year from $1.8m to $2.5m, as a result of additional debt associated with the Waves and Treasure Beach acquisitions and movements in the US LIBOR rate from circa 50 basis points at the start of the year to 125 basis points at the end. The Group continues to explore opportunities to convert variable interest rates to fixed rates in the future. Finance expenses also included $0.3m of foreign exchange losses on forward contracts (2016: $0.4m).

Taxation

Taxation of $1.8m (2016: $2.0m) largely reflected lower profit before tax as well as changes in the relative level of bargain purchase gain and exceptional expenses compared to the prior year.

The adjusted effective tax rate on adjusted profit before tax was 18.7% compared to 17.6% in the prior year.

Profit after tax and Earnings per share

Profit after tax reduced to $9.2m compared to $9.8m in the prior year, with diluted EPS at 10.3 cents per share compared to 11.0 cents per share. Adjusted profit after tax decreased to $9.0 million (2016: $11.7 million). Adjusted diluted EPS reduced from 13.1 cents per share to 10.1 cents per share.

Non-current assets

Property, plant and equipment increased to $183.7m from $172.8m, largely due to the purchase of Treasure Beach in May 2017. In addition, $0.1m of intangible assets were recognised in relation to the cost of the Group's new commercial website.

Net debt and net asset values

Net debt has increased from $61.8m to $73.1m at 30 September 2017, primarily due to the acquisition of Treasure Beach Hotel in May 2017. An additional $8.4m was added to the Bank of Novia Scotia loan facility and was fully drawn down at that point. In addition, the Group drew down its $5.0m revolving facility and made total repayments of $5.2m against bank and vendor loans. At 30 September 2017, the Group has an additional undrawn overdraft facility available of $9.6m and undrawn revolving facilities of $0.2m.

Treasure Beach Hotel was valued by Terra Caribbean at $9.7m at acquisition. Combined with the valuation of Waves in June 2016 and the remaining properties in April 2015, total property valuation is $267.2m, which is greater than its carrying value in these accounts.

Despite the shift in the market which has affected 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.

The Group therefore has an implied net asset value of $194.1m at 30 September 2017, or 163 pence per share (218 cents per share).

Reconciliation of unaudited net debt and unaudited net asset value


2017

2016


$m

$m

Bank of Novia Scotia term loan (due 2020)

(67.9)

(63.5)

Bank of Novia Scotia revolving facility

(4.8)

-

Waves vendor loan

(1.0)

(2.0)

Total loans and borrowings

(73.7)

(65.5)

Bank overdraft

(0.4)

-

Cash and cash equivalents

1.0

3.7

Net debt

(73.1)

(61.8)

Implied total property value

267.2

257.5

Net asset value

194.1

195.7

 

Cash flow

The Group's free cash flow (defined as cash flow from operations less capital expenditure) was $6.9m for 2017 (2016: $7.4m). The increase comprises a reduction in cash from operations ($12.5m compared to $17.0m) offset by a reduction in capital expenditure ($5.6m compared to $9.7m) associated with the completion of the Waves renovation in late FY 16. Capital expenditure on Treasure Beach renovations of $0.7m have been recognised in 2017.

As well as reduced EBITDA, cash flow from operations was impacted by the first year of payments on account for Barbados tax expenses (leading to a $2.5m cash tax payment compared to $0.7m in the prior year) and an increase in trade and other receivables of $1.2m largely relating to VAT receivables and non-trade amounts associated with new management and sales agreement contracts.

The Group paid $8.2m in relation to consideration and fees for the Treasure Beach acquisition, net of cash acquired, which was financed through additional loan financing. Dividends paid were $1.6m lower than the prior year at $7.9m, largely due to changes in the Sterling/USD exchange rate, however cash interest paid increased by $0.7m.

Overall, cash and cash equivalents, net of drawn overdraft, decreased from $3.7m to $0.6m at 30 September 2017.



UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

 

 

 

 

 

Note

Year ended 30 September

2017

$'000

Year ended 30 September

2016

(restated*)

$'000

Revenue

5

59,872

56,981

Cost of sales


(24,378)

(21,863)

Gross profit


35,494

35,118

Selling, general and administrative expenses




  Before exceptional items and bargain purchase gain


(22,900)

(20,074)

  Exceptional items

9

(1,054)

(2,188)

  Bargain purchase gain

4, 6

1,259

-







(22,695)

(22,262)

Other operating income


986

1,112

Operating profit


13,785

13,968

Finance income

10

12

22

Finance expenses

10

(2,810)

(2,201)

Finance expenses - net


(2,798)

(2,179)

Profit before taxation

6

10,987

11,789

Taxation

11

(1,799)

(2,004)

Profit for the year and total comprehensive income attributable to equity holders of the parent company


 

9,188

 

9,785





Earnings per share




Basic earnings per share (cents)

12

10.3

11.0

Diluted earnings per share (cents)

12

10.3

11.0

Other comprehensive income




Items that may be subsequently reclassified to profit or loss




Currency translation differences


(112)

-

Total comprehensive income for the year


9,076

9,785





Non GAAP measures




EBITDA and Adjusted EBITDA




Operating profit


13,785

13,968

Loss on disposal of assets


49

-

Depreciation and amortisation

6

4,135

3,230

Impairment of short-term investments

18

34

-

EBITDA


18,003

17,198

Exceptional items

9

1,054

2,188

Non-exceptional share-based payment charges


287

180

Bargain purchase gain

4, 6

(1,259)

-

Adjusted EBITDA


18,085

19,566

Adjusted EBITDA margin


30.2%

34.4%

The notes form part of these financial statements.

* The comparative figures have been restated to adjust the fair value acquisition accounting relating to the prior year acquisition. See note 2.1.3.

 

 

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 

 

 

 


Group

Group

Company

Company


2017

2016

(restated*)

2017

2016

Note

$'000

$'000

$'000

$'000

Non-current assets






Investments in subsidiary undertakings            

30

-

-

104,639

125,127

Property, plant and equipment     

13

183,714

172,788

-

-

Intangible assets

      14

114

-

-

-

Deferred tax assets                     

15

4,938

5,138

-

-



188,766

177,926

104,639

125,127

Current assets






Inventories

      16

3,062

2,950

-

-

Trade and other receivables

17

4,668

3,618

42

18

Short-term investments       

      18

33

67

-

-

Cash and cash equivalents

19

996

3,704

-

611



8,759

10,339

42

629







Total assets


197,525

188,265

104,681

125,756







Current liabilities






Loans and borrowings              

20

7,095

4,969

-

-

Bank overdraft     

19

411

-

-

-

Trade and other payables          

21

7,081

7,293

43

935

Provisions     

22

615

261

-

-

Tax payable


892

1,678

-

-



16,094

14,201

43

935

Non-current liabilities






Loans and borrowings              

20

66,602

60,531

-

-

Deferred tax liabilities                

15

5,047

4,569

-

-

Total liabilities


87,743

79,301

43

935

Net assets


109,782

108,964

104,638

124,821







Equity attributable to equity holders of the parent






Share capital     

24

1,367

1,367

1,367

1,367

Merger reserve


43,497

43,497

86,208

86,208

Share-based payment reserve


556

909

556

909

  Retained earnings at the beginning of the year


63,191

60,483

36,337

43,341

  Profit/(loss) for the year attributable to the owners


9,188

9,785

142

(575)

  Other changes in retained earnings


(8,017)

(7,077)

(19,972)

(6,429)

Retained earnings


64,362

63,191

16,507

36,337

Total equity


109,782

108,964

104,638

124,821

The notes form part of these financial statements.

* The comparative figures have been restated to adjust the fair value acquisition accounting relating to the prior year acquisition. See note 2.1.3.



 

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY



 

Share capital

 

Merger reserve

Share-based

payment reserve

 

Retained earnings

 

Total equity

Note

$'000

$'000

$'000

$'000

$'000

Balance at 1 October 2015


1,367

43,497

494

60,483

105,841

Profit for the year (restated*)


-

-

-

9,785

9,785

Total comprehensive income for the year (restated*)


-

-

-

  9,785

  9,785

Foreign exchange


-

-

-

57

57

Dividends

-

-

-

(7,134)

(7,134)

Share-based payments                                                        23

-

-

415

-

415

Total transactions with owners recognised







directly in equity


-

-

        415

(7,077)

(6,662)

Balance at 30 September 2016 (restated*)


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

The notes form part of these financial statements.

* The comparative figures have been restated to adjust the fair value acquisition accounting relating to the prior year acquisition. See note 2.1.3.

 

UNAUDITED COMPANY STATEMENT OF CHANGES IN EQUITY



Share-based

Share                      Merger                 payments

capital                      reserve                       reserve

 

Retained earnings

 

Total equity

Note

$'000                        $'000                       $'000

$'000

$'000

 

Balance at 1 October 2015


1,367         86,208                 494

43,341

131,410

Loss for the year


-                       -                       -

(575)

(575)

Total comprehensive loss for the year


-                       -                       -

(575)

(575)

Currency translation differences


-                       -                       -

705

705

Dividends


-                       -                       -

(7,134)

(7,134)

Share-based payments

23

-                       -                   415

-

415

Total transactions with owners

recognised

 

directly in equity


-                       -                  415

(6,429)

(6,014)

Balance at 30 September 2016


1,367         86,208                 909

36,337

124,821

Loss 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

The notes form part of these financial statements.

UNAUDITED CONSOLIDATED AND COMPANY STATEMENTS OF CASH FLOWS

 


Group 2017

$'000

Group 2016

(restated*)

$'000

Company

2017

$'000

Company

2016

$'000

Cash flows from operating activities





Profit/(loss) after taxation

9,188

9,785

142

(575)

Depreciation and amortisation

4,135

3,230

-

-

Impairment of short-term investment

34

-

-

-

Income tax expense

1,799

2,004

-

-

Net finance expense

2,810

2,201

283

660

Bargain purchase gain

(1,259)

-

-

-

Loss/(gain) on disposal of fixed assets

49

(78)

-

-

Share-based payments

(353)

415

(353)

415

Foreign exchange

-

-

-

(86)

Increase in provisions

354

261

-

-

Operating profit/(loss) before working capital changes

16,757

17,818

72

414

Increase in inventories

(112)

(156)

-

-

Increase in trade and other receivables

(1,237)

(21)

(24)

(1)

(Decrease)/increase in trade and other payables

(426)

58

(892)

122

Increase/(decrease) in due to related parties

-

-

9,438

(1,506)

(Increase)/decrease in due from related parties

-

-

(1,017)

11,108

Taxation paid

(2,489)

(687)

-

-

Net cash generated from operating activities

12,493

17,012

7,577

10,137

Cash flows from investing activities





Purchase of property, plant and equipment

(5,440)

(9,660)

-

-

Purchase of intangible assets

(137)

-

-

-

Proceeds from disposal of equipment

212

669

-

-

Acquisition of subsidiary, net of cash acquired

(7,766)

(3,424)

-

-

Net cash used in investing activities

(13,131)

(12,415)

-

-

Cash flows from financing activities





Receipt of bank loans

13,316

18,500

-

-

Repayment of bank borrowings

(4,120)

(12,226)

-

-

Repayment of third party loans

(1,000)

(1,414)

-

-

Dividends paid

(7,905)

(9,526)

(7,905)

(9,526)

Interest paid

(2,489)

(1,826)

-

-

Loss on forward contract settlement

(283)

-

(283)

-

Net cash used in financing activities

(2,481)

(6,492)

(8,188)

(9,526)

Net (decrease)/increase in cash and cash equivalents

(3,119)

(1,895)

(611)

611

Cash and cash equivalents at the beginning of the year (net of  overdraft)

 

3,704

 

5,599

 

611

 

-

Cash and cash equivalents at the end of the year (net  of overdraft)

 

585

 

3,704

 

-

 

611

Bank overdraft

411

-

-

-

Cash and cash equivalents at the end of the year

996

3,704

-

611

The notes form part of these financial statements.

* The comparative figures have been restated to adjust the fair value acquisition accounting relating to the prior year acquisition. See note 2.1.3.

 



 

UNAUDITED 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 year, the Group acquired Treasure Beach, a Barbados-based 35 room hotel.

 

2.   SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these company and consolidated financial statement are set out below. They have been consistently applied in the financial years ending 30 September 2017 (2016/17 financial year) and 30 September 2016 (2015/16 financial year) unless otherwise stated.

 

2.1.1.  BASIS OF PREPARATION

These unaudited financial statements of Elegant Hotels Group plc and the unaudited 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 financial information set out above does not constitute the Company's statutory accounts for the years ended 30 September 2017 or 2016. The financial information for 2016 is derived from the statutory accounts for 2016 which have been delivered to the registrar of companies. The auditor has reported on the 2016 accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. The statutory accounts for 2017 will be finalised on the basis of the financial information presented by the Directors in this preliminary announcement and will be delivered to the registrar of companies in due course.

 

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.

 

2.1.2.  GOING CONCERN

The Group meets its day-to-day working capital requirements with the assistance of its bank facilities which were renewed on 26 May 2015. The Group's forecasts and projections take account of reasonably possible changes in trading performance and show that 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. The Directors consider it appropriate to adopt the going concern basis in preparing the Group financial statements.

 

2.1.3.  PRIOR YEAR ADJUSTMENT - CORRECTION OF DEFERRED TAX ON ACQUISITION

A prior year adjustment has arisen in respect of the year ended 30 September 2016.

 

In the preparation of these financial statements, the Directors identified that a deferred tax liability that should have been recognised on the 3 March 2016 acquisition through business combination of Waves Hotel and Spa had been omitted from the acquisition accounting and the 2016 statement of financial position. The deferred tax relates to buildings acquired through that business combination for which there is no recognition exemption.  As a result the Company has made a prior period adjustment to correct this, restating the prior year consolidated statement of comprehensive income, consolidated statement of financial position, consolidated statement of changes in equity, consolidated statement of cash flows and related notes as at 30 September 2016, to eliminate the bargain purchase gain in the statement of comprehensive income and record an increased deferred tax liability on the statement of financial position as set out below. The affected balances have been marked as restated.





As previously reported

2016

$'000

Adjustments

$'000

Restated 2016

$'000

Bargain purchase gain




3,995

(3,995)

-

Deferred tax liability




574

3.995

4,569


The impact on profit after tax is a decrease of $3,995k and the impact on net assets is a decrease of $3,995k. The impact on both basic and diluted EPS is a reduction from 15.5 to 11.0 cents per share.

 

2.2.     CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES

No new standards, interpretations or amendments effective for the first time to the year ended 30 September 2017 have had a material impact on the consolidated results or financial position of the Group or Company.

Management is assessing the following standards, interpretations and amendments, which are not yet effective or adopted, for the impact on the Group:

*  IFRS 9 Financial Instruments (effective date for accounting periods from 1 January 2018).

*  IFRS 15 Revenue from contracts with Customers (effective date for accounting periods from 1 January 2018).

Management has reviewed IFRS 15 and is considering 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. If service charge was recorded as revenue, it would increase revenue by circa 10%. There would be no impact on profit as a result of any change.

*  IFRS 16 Leases (effective date for accounting periods from 1 January 2019). This standard has not yet been endorsed by the EU. 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.

*  Classification and Measurement of Share-based Payment Transactions - Amendments to IFRS 2. This amendment has not yet been endorsed for use in the EU.

*  Annual improvements to IFRSs (2014-2016 Cycle) - Minor amendments to various accounting standards, effective for periods beginning on or after 1 January 2017 onwards. This amendment has not yet been endorsed for use in the EU.

The other standards not yet in effect are not expected to have a material impact on the Group or Company.

 

2.3.     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.

 

2.4.     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.

 

The Group enters into forward US dollar/Sterling forward exchange contracts to secure the amount of approved dividends. No other forward contracts or similar contracts are conducted.

2.5.     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.

 

2.6.     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.

 

2.7.     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.

 

2.8.     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.

 

2.9.     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.

 

2.10.   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.

 

2.11.   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.

 

2.12.   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. Net realisable value for inventories held for consumption in the provision of services is equivalent to cost.

 

2.13.   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".

 

2.14.   INTANGIBLE ASSETS

The Group records intangible assets relating to its commercial website. These assets are initially recorded at cost. The website has been assessed as an asset with a finite life of three years. The cost of the website is amortised on a straight line basis over this period. The carrying value and the amortisation period is reviewed annually.

 

Costs associated with maintaining the website are recognised as an expense when incurred.

 

2.15.   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.

 

2.16.   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.

 

2.17.   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.

 

2.18.   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 provision

for impairment.

 

Cash and cash equivalents comprise of 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.

 

2.19.   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.

 

2.20.   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.

 

2.21.   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.

 

2.22.   DIVIDEND 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 - The assessment of the useful economic lives requires judgement in order that depreciation can be charged over the life selected. This also includes the assessment of residual values that will be attributed to the hotel properties. Judgement is also required in determining whether the carrying values of the assets have any indication of impairment.

 

Acquisition accounting - The Group assessed the identifiable assets and liabilities of Treasure Beach Limited on acquisition. The difference in the fair value and the carrying amount on the property acquired resulted in a bargain purchase gain (see note 4). Other Items specifically considered but not deemed relevant related to customer lists, brand name, workforce and intellectual property. The Group did not identify any intangible items that would meet the criteria for recognition on acquisition.

 

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 has been independently valued at $9.7 million by Terra Caribbean. In addition, a deferred tax liability of $0.6m 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 acquisitions 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 up to July 2017, the operation of the hotel was under the existing brand and the net losses of $0.0m have been recognised as exceptional expenses. 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 is $0.1 million and, at the acquisition date, all of the contractual cash flows were expected to be received.

 

ACQUISITION OF WAVES HOTEL & SPA

On 3 March 2016, the Group purchased Waves Hotel & Spa via the acquisition of 100% of the shares of Swiss International Ltd for $5.4 million. This was satisfied in cash and a loan from the vendor of $2.0 million. The loan is payable in four equal instalments which commenced on 3 September 2016 and will be settled within the next three years.

 

The acquisition is in line with the Group's stated strategy to expand both on Barbados and further into the Caribbean. In the period immediately following the date of acquisition up to 18 April 2016, the operation of the hotel and spa was licensed back to the former owner to fulfil existing customer reservations. The property closed for renovation and reopened in August 2016. Waves therefore contributed a small operating loss for the 2016 financial year, the period of acquisition.

 

EFFECT OF ACQUISITION

The acquisitions described above had the following effect on the Group's assets and liabilities:


 

2017

2016


Acquisition of Treasure Beach Hotel

Acquisition of Waves Hotel & Spa


Acquiree's book values $'000

Fair value Adjustments

 $'000

Carrying amounts $'000

Acquiree's book values $'000

Fair value adjustments

(restated*) $'000

Carrying amounts

(restated*) $'000

Acquiree's net assets at the acquisition date







Property, plant and equipment

7,912

1,841

9,753

28,524

(6,609)

21,915

Inventory

17

-

17

-

-

-

Trade and other receivables

61

-

61

63

-

63

Short-term investments

-

-

-

27

-

27

Cash and cash equivalents

103

-

103

-

-

-

Trade and other payables

(224)

-

(224)

(360)

-

(360)

Interest-bearing loans and borrowings

-

-

-

(12,226)

-

(12,226)

Deferred tax liabilities

-

(582)

(582)

-

(3,995)

(3,995)

Net identifiable assets and liabilities

7,869

1,259

9,128

16,028

(10,604)

5,424

Consideration paid



Cash paid

7,869

3,424

Vendor loan

-

2,000

Total consideration

7,869

5,424

Bargain purchase gain

1,259

-

* The comparative figures have been restated to adjust the fair value acquisition accounting relating to the prior year acquisition. See note 2.1.3.

5.    REVENUE

The Group's revenue is earned in Barbados in USD or currencies pegged to USD.

 


2017

$'000

2016

$'000

Accommodation

45,405

42,843

Food and beverage

13,594

13,416

Other services

873

722


59,872

56,981

 

Virgin Holidays represented 13% of the Group's total revenue (2016: 12%). 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:

 


2017

$'000

2016

(restated*)

$'000

Depreciation and amortisation (note 13, 14)

4,135

3,230

Repairs and maintenance

1,742

2,280

Operating lease expense (note 25)

78

65

Employee costs before share-based payments (note 7)

14,754

15,924

Fees payable to the Company's auditor

296

459

Exceptional items (note 9)



Share-based payments related to the IPO (note 23)

(640)

235

Acquisition and other one-off costs

1,694

1,953

Bargain purchase gain

(1,259)

-

* The comparative figures have been restated to adjust the fair value acquisition accounting relating to the prior year acquisition. See note 2.1.3.

AUDITOR'S REMUNERATION


2017

$'000

2016

$'000

Audit of these financial statements

80

98




Amounts receivable by the Company's auditor and its associates for:



Audit of financial statements of subsidiaries of the Company

157

194

Taxation compliance services to subsidiaries of the Company

53

20

Other assurance services to the Company

-

12

Other assurance services to subsidiaries of the Company



Other taxation advisory services

6

39

Transaction services

-

96


296

459



 

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:

 


2017

Number

2016

Number

Directors

2

2

Administration

31

26

Sales and marketing

15

13

Hotels and restaurant

993

962


1,041

1,003

The aggregate payroll costs of employees were as follows:

 


2017

$'000

2016

$'000

Wages and salaries

12,610

13,909

Social security costs

2,033

1,901

Contributions to defined contribution plans

111

114

Total before share-based payments

14,754

15,924

Share-based payment expenses (see note 23)

(353)

415


14,401

16,339

 

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 (2016: $0.1 million).

 

8.    DIRECTORS' REMUNERATION


2017

$'000

2016

$'000

The remuneration of the Directors comprises:



Salaries, fees and other short-term employee benefits

1,031

815

Compensation payments for loss of office

152

-

Total salaries and other short-term employment benefits

1,183

815

Share-based payments (credit)/charge

(148)

154


1,035

969

 

The aggregate remuneration (including amounts receivable under long-term incentive schemes) of the highest paid Director during the year was $0.3 million (2016: $0.4 million). None of the Directors received a payment in lieu of pension contribution (2016: none).

 

9.    EXCEPTIONAL ITEMS


2017

$'000

2016

$'000

Share-based payments charge relating to awards issued on IPO

(640)

235

Acquisition costs for Treasure Beach hotel (2016: Waves Hotel & Spa)

419

915

Pre-opening costs for Treasure Beach hotel (2016: Waves Hotel & Spa)

276

489

Restructuring costs

937

360

Other exceptional items

62

189


1,054

2,188



 

 

10. FINANCE INCOME AND EXPENSE


2017

$'000

2016

$'000

Finance income



Interest receivable in relation to security deposits

12

22

Finance expense



Interest on loans

2,489

1,788

Amortisation of capitalised finance costs

38

38

Foreign exchange loss on forward contract

283

375


2,810

2,201

 

11. TAXATION

Recognised in the Income Statement

 


2017

$'000

2016

$'000

Current tax expense



Current year

2,101

1,807

Adjustments for prior years

(398)

(85)

Total current tax expense

1,703

1,722




Deferred tax expense



Origination and reversal of temporary differences

96

282

Total deferred tax expense (note 15)

96

282




Tax expense in the Income Statement

1,799

2,004

 

RECONCILIATION OF EFFECTIVE TAX RATE


2017

$'000

2016

(restated*)

$'000

Profit for the year

10,987

11,789

Tax using the Barbados corporation tax rate of 25% (2016: 25%)

2,747

2,947

Effect of tax rates in foreign jurisdictions

48

122

Utilisation of capital allowances

(533)

(407)

Non-deductible expenses

642

(18)

Marketing development allowance

(624)

(753)

Tax on bargain purchase gain not recognised

(314)

-

Tax losses not recognised

231

198

Over provided in prior years

(398)

(85)

Total tax expense

1,799

2,004

* The comparative figures have been restated to adjust the fair value acquisition accounting relating to the prior year acquisition. See note 2.1.3.

12. EARNINGS PER SHARE


2017

$'000

2016

(restated*)

$'000

Profit used in calculating basic and diluted earnings per share

9,188

9,785

Bargain purchase gain

(1,259)

-

Exceptional costs

1,054

2,188

Non-exceptional share-based payment charges

287

180

Tax on one-off items

(267)

(488)

Profit used in calculating adjusted basic and diluted earnings per share

9,003

11,665




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

- for the purpose of diluted earnings per share and adjusted diluted earnings per share (number)

 

89,100,871

 

89,037,710




Earnings per share



Basic earnings per share (cents per share)

10.3

11.0

Diluted earnings per share (cents per share)

10.3

11.0




Adjusted earnings per share (cents per share)

10.1

13.1

Adjusted diluted earnings per share (cents per share)

10.1

13.1

* The comparative figures have been restated to adjust the fair value acquisition accounting relating to the prior year acquisition. See note 2.1.3.

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 1,717,223 potentially issuable shares (2016: 4,037,084) all of which relate to share options issued to Directors and key management personnel. The dilutive number of issuable shares is 285,082 (2016: 221,921) for the purposes of calculating the dilutive 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 on earnings of share based payments, bargain purchase gains, acquisition and pre- opening costs relating to new hotels and other exceptional items.

 

13. PROPERTY, PLANT AND EQUIPMENT


Land and
buildings
$'000

Motor

vehicle

$'000

 

Fixtures & fittings
$'000

Under construction
$'000

Total

$'000

 

Cost






Balance at 1 October 2015

139,798

27

37,177

306

177,308

Additions

4,622

-

4,598

170

9,390

Additions from business combinations

21,915

-

-

-

21,915

Transfers

19

-

262

(281)

-

Disposals

(28)

-

(808)

-

(836)

Balance at 30 September 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







Depreciation






Balance at 1 October 2015

5,120

4

26,880

-

32,004

Depreciation charge for the year

565

4

2,661

-

3,230

Disposals

(7)

-

(238)

-

(245)

Balance at 30 September 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







Net book value






At 30 September 2016

160,648

19

11,926

195

172,788

At 30 September 2017

170,884

25

10,274

2,531

183,714

 

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 fair value of the Group's property, plant and equipment is considered to be of greater than the book value recorded in these financial statements. All properties, with the exception of Treasure Beach Hotel and Waves Hotels and Spa (those properties disclosed as acquired in these financial statements) were valued by CBRE in April 2015. This valuation indicated a value of $235.5 million which is in excess of their carrying amount. The majority of the Group's non-current assets are located in Barbados.

 

14. INTANGIBLE ASSETS

 


Amount at
30 September
2016
$'000



Additions
$'000



Amortisation
$'000

Amount at
30 September 2017
$'000

Cost

-

137

-

137

Accumulated amortisation

-

-

(23)

(23)

Carrying amount

-

137

(23)

114

 

The fair value of the Group's intangible asset is considered to be greater than the book value recorded in these financial statements.

 

15. DEFERRED TAX ASSETS AND LIABILITIES

RECOGNISED DEFERRED TAX ASSETS AND LIABILITIES

Deferred tax assets and liabilities are attributable to the following:

 


 

Assets

 

Liabilities


2017

$'000

2016

(restated*)

$'000

2017

$'000

2016

(restated*)

$'000

Property, plant and equipment

1,420

1,803

(5,238)

(4,866)

Tax value of carried forward loses

1,227

841

-

-

Qualifying capital expenditure

2,482

2,791

-

-

Tax assets/(liabilities)

5,129

5,435

(5,238)

(4,866)






Net deferred tax (liabilities)/assets

(109)

569



* The comparative figures have been restated to adjust the fair value acquisition accounting relating to the prior year acquisition. See note 2.1.3.

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. The 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 2017, the value of the unrecognised deferred tax asset is $0.2 million (2016: $0.9 million). $0.2 million (2016: $0.3 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

2016

(restated*)

$'000

Recognised in income

$'000

Recognised on acquisition

$'000

30 September

2017

$'000

Property, plant and equipment

(3,064)

(172)

(582)

(3,818)

Tax value of loss carry-forwards utilised

842

385

-

1,227

Qualifying capital expenditure

2,791

(309)

-

2,482


569

(96)

(582)

(109)

* The comparative figures have been restated to adjust the fair value acquisition accounting relating to the prior year acquisition. See note 2.1.3.

16. INVENTORIES


Group 2017

$'000

Group 2016

$'000

Food and beverage

678

524

Base stock

2,171

2,201

Guest supplies and stationery

170

225

Goods in transit

43

-


3,062

2,950

 

There is no significant difference between the fair value of inventories and the values stated above.

 

17. TRADE AND OTHER RECEIVABLES


Group 2017

$'000

Group 2016

$'000

Company

2017

$'000

Company

2016

$'000

Trade receivables

2,411

2,396

-

18

Prepayments

746

634

42

-

Electricity bonds

461

448

-

-

Other receivables

1,050

140

-

-


4,668

3,618

42

18

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.

 

During the year, electricity bonds were reclassified from short-term investments to trade and other receivables.

 

CREDIT RISK CONCENTRATION BY GEOGRAPHY

The concentration of credit risk for trade receivables for the Group at the reporting date by geographic region was:

 


2017

$'000

2016

$'000

Geographic region



Barbados

80

242

UK

1,629

1,735

United States and Canada

559

311

Other

143

108

Trade receivables

2,411

2,396

 

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:

 


2017

$'000

2016

$'000

Tour operators

2,165

2,118

Credit card companies

219

221

Other

27

57

Total trade receivables

2,411

2,396

 

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:

 


 

Gross 2017

$'000

Carrying amount

2017

$'000

 

Gross 2016

$'000

Carrying amount

2016

$'000

Not past due

2,124

2,124

2,121

2,121

Past due (0-30 days)

212

212

259

259

Past due (31-120 days)

74

74

16

16

More than 120 days

37

1

-

-


2,447

2,411

2,396

2,396

 

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:

 


2017

$'000

2016

$'000

Balance at the start of the year

-

24

Allowance recognised

36

-

Allowance utilised

-

-

Allowance reversed

-

(24)

Balance at end of the year

36

-

 

18. SHORT-TERM  INVESTMENTS

The Group has an investment in the Barbados Golf Club which was originally undertaken for commercial reasons. During the period, the Group impaired its investment from $0.1 million in 2016 to $0.0 million. The carrying amount reflects the fair value of this investment.

 

19. CASH AND CASH EQUIVALENTS


Group 2017

$'000

Group 2016

$'000

Cash and cash equivalents

996

3,704

Bank overdraft

(411)

-


585

3,704

 

Cash and cash equivalents comprise cash, cash at bank and bank deposits with a maturity of up to 90 days.

 

20. LOANS AND BORROWINGS


Group

2017

$'000

Group 2016

$'000

Non-current liabilities



Secured bank loans

66,102

59,531

Third-party loan

500

1,000


66,602

60,531

Current liabilities



Secured bank loans

6,595

3,969

Third-party loan

500

1,000


7,095

4,969

Total

73,697

65,500

 

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 $13.4 million from loans and borrowings (2016: $18.5 million) and repaid $4.2 million (2016: $12.2 million). The Group also repaid $1.0 million in relation to third-party borrowings (2016: $1.4 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 (2016: $63.5 million). After accounting for repayments of $4.0 million during the year (2016: $nil), $67.9 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 million. $4.8 million of this facility was drawn at the end of the year (2016: $0.0 million).

 

The Group also has an operating overdraft facility in Barbados dollars of $19.8 million (USD $10 million). This facility

 

The secured bank loans 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. Therefore, these balances are entirely variable.

 

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 2017, the total indebtedness of subsidiary undertakings under these cross-guarantees amounted to $72.7 million (2016: $63.5 million).

 

Third-party loan

As part of the acquisition of Waves Hotel & Spa, the Group agreed an 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 two instalments are due in September 2018 and September 2019.

 

Sensitivity analysis

An increase of 100 basis points in interest rates would decrease profit or loss by US$0.7 million on an annual basis. This analysis assumes that all other variables, in particular foreign currency rates, remain constant.

 

The financial liabilities which have a contractual maturity greater than one year are the Group's loans and borrowings. Including estimated interest payments and excluding the effect of netting agreements, the payments due in relation to the Group's loans and borrowings are $8.6 million due within one year and $68.6 million due between one and five years (2016: $7.6 million due within one year and $57.5 million due between one and five years.

 

21. TRADE AND OTHER PAYABLES


Group 2017

$'000

Group 2016

$'000

Company

2017

$'000

Company

2016

$'000

Current





Trade payables

2,820

2,176

-

-

Social security and other taxes

567

187

-

-

Accrued expenses

1,608

2,422

43

935

Deferred income

1,587

2,625

-

-


7,081

7,293

43

935

 

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 2017 were 30 days (2016: 42 days).

22. PROVISIONS

Provisions recognised at the end of the year were as follows:

 

Group 2016

$'000

Additional provisions

$'000

Unused provisions

$'000

Group 2017

$'000

Legal

261

30

(93)

198

Annual leave

-

342

(30)

312

Sales incentive

-

105

-

105


261

477

(123)

615

 

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 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 which is the three years prior to vesting. 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. From 2016/17, new option grants have been valued using a Monte Carlo option pricing model. Prior to 2016/17, options were valued using the Black- Scholes method.

 

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 (2016: five years).

·    Expected dividends (dividend yield) is 7% (2016: 7%).

·    All option exercises are expected to be equity-settled.

·    The expected volatility in all cases is 40% based upon historical share price volatility of listed, comparable businesses over a period of time equal to expected option life ending on date of grant.

·    The risk free rate applied to the options is 5.5% and is based upon the yield on zero-coupon Barbados government bonds of a term consistent with the expected option life.

·    It has been assumed that the employee attrition rate will be 5% (2016: 6.3%) 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 80 pence (2016: 89 pence).

 

OPTIONS OVER ORDINARY SHARES OUTSTANDING AS AT 30 SEPTEMBER 2017





Grant date




Share price

 (p)



Number of options outstanding




Exercise price

 (p)

Fair value per option (p)



Expected forfeiturerate



Contractual maturity
(years)





Vesting date

18 March 2016

107

769,278

1

75

5%

3.5

30 September 2018

21 July 2017

78

947,945

1

73

5%

4.8

30 September 2019



1,717,223






A credit of $0.4 million has been included in the Statement of Comprehensive Income (2016: charge of $0.4 million). Of this amount a credit of $0.6 million related to the awards issued on IPO (2015: charge of $0.2 million).

 

24. SHARE CAPITAL AND RESERVES

 

 

Number of ordinary shares of the Company of 1p each

2017

2016

Issued

$'000

Number

of shares

Issued

$'000

Number

of shares

As at 1 October and 30 September

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.

 

DIVIDENDS

During the year the Company declared an interim dividend of 3.5 pence per ordinary share (2016: 3.5 pence per ordinary share) which was paid. After the balance sheet date, a final dividend of 1.75 pence per ordinary share (2016: 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 £0.01 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 £1 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 $0.2 million (2016: $0.2 million). Of these amounts, $0.1 million (2016: $0.1 million) are payable in less than one year, $0.1 million (2016: $0.1 million) are payable between one and two years and no amounts over two years (2016: $0.0 million). No other lease obligation is considered significant. The Company has no operating lease commitments.

 

26. COMMITMENTS AND CONTINGENCIES

There were outstanding capital commitments of $0.1 million at 30 September 2017 (30 September 2016: $nil).

 

The Company is party as a guarantor to cross-guarantees in respect of the indebtedness of subsidiary undertakings. At 30 September 2017 the total indebtedness of subsidiary undertakings under these cross-guarantees amounted to $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 2017

$'000

Group 2016

$'000

Company

2017

$'000

Company

2016

$'000

Key management remuneration including social security costs

2,002

1,482

-

-

Share-based payments (credit)/charge

(316)

340

-

-


1,686

1,822

-

-

 

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.

 

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 $1.0 million (2016: $3.7 million) are classified as Level 1 in the valuation hierarchy. All other financial assets of $2.4 million (2016: $2.5 million) and financial liabilities of $81.9 million (2016: $73.1 million) are classified as Level 3 in the valuation hierarchy. The carrying value of all of the Group's net financial liabilities of $78.4 million (2016: $66.4 million) is equivalent to their fair value.

The CBRE valuation dated April 2015 indicated a value of $235.5 million for properties with the exception of Treasure Beach Hotel and Waves Hotels and Spa (those properties disclosed as acquired in these financial statements). This is classified at level 3 under the fair value hierarchy and valued using the highest and best use method.

The Company had trade and other payables with a carrying value of $0.0 million (2016: $1.0 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 other financial instruments of a speculative nature. In the 2017 Financial year, the Group used forward currency contracts to secure the value of approved dividends payable to its shareholders. No other new forward currency contracts are  undertaken.

 

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 2017 and 30 September 2016.

 

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. Provision 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 $0.0 million (2016: $0.9 million) 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 in 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 $114.4 million (30 September 2016: $113.0 million).

 

The Group's objectives when 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 aims to increase the value of ordinary dividends over time, taking 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


 

      2017

 

      2016

 

Company name                                                                                                                                              

of registered office address

 

Class of shares

          %

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%

-

International Tourism Management Services Limited*                         

Barbados

Ordinary

100%

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%

Elegant Hotels (Barbados) Management Ltd*                                        

Barbados

Ordinary

100%

100%

*   Wholly owned held indirectly through subsidiary undertakings.

 

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 $20.5 million as a result of movements in intercompany loans classified as investments.


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