Final Results

RNS Number : 9840F

Dalata Hotel Group PLC

27 February 2018

 

Delivering our promise

ISE: DHG   LSE: DAL

Dublin and London | 27 February 2018: Dalata Hotel Group plc ("Dalata" or the "Group"), the largest hotel operator in Ireland with a growing presence in the United Kingdom, announces its results for the year ended 31 December 2017.

Results Summary

	2017	2016	Variance
Revenue	€348.5m	€290.6m	19.9%
Segments EBITDAR1	€149.5m	€120.3m	24.3%
Adjusted EBITDA1	€104.9m	€85.1m	23.3%
Profit before tax	€77.3m	€44.1m	75.3%
Basic EPS	37.2 cents	19.1 cents	94.8%
Adjusted diluted EPS1	37.9 cents	26.6 cents	42.5%
Key performance indicators (reflect hotel performance for the period owned by the Group)
Occupancy %	83.1%	82.1%	100 bps
Average room rate (€)	€106.48	€97.60	€8.88
RevPAR1 (€)	€88.51	€80.20	€8.31

Key Highlights

·    Strong RevPAR performance across three regions with Group revenue per available room¹ (RevPAR) up 10.4% to €88.51

·    Continued improvement in segments EBITDAR margin¹, increasing from 41.4% to 42.9%

·    Total pipeline of 2,200 rooms

o 5 new hotels and 4 major hotel extensions under construction

o 4 new hotels in planning process

o All on time and within budget

·    €129 million spent on hotel acquisitions

·    Balance sheet continues to strengthen

o Hotel assets of almost €1 billion

o Net Debt to Adjusted EBITDA¹ of 2.4x

·    Net upward property revaluation gain of €52.1 million

Announcing today

The Board intends to commence the payment of dividends from 2018 onwards. The Board has adopted a progressive dividend policy with the payout based on a percentage of profit after tax which is expected to be in the range of 20% to 30%. An interim dividend will be declared with the interim results in September 2018.

Strategic and operating highlights

·     Current pipeline of over 2,200 new rooms:

o  Four new hotels totalling 727 rooms on target to open during 2018 in Belfast, Dublin (2) and Cork creating 500 new jobs on the island of Ireland. Maldron Hotel Newcastle (264 rooms) scheduled to open in early 2019

o  Extensions at hotels in Dublin and Galway on schedule to deliver an additional 253 rooms during 2018

o  Entered into agreements to lease three new hotel developments totalling approximately 850 rooms in Glasgow and Manchester

o  Since year end the Group received full planning permission at Tara Towers Hotel to develop a new 140 bedroom hotel branded Maldron Hotel Merrion Road and 69 residential units. Construction is expected to commence in 2018

·     €129 million spent on hotel acquisitions:

o  Completed the purchase of Hotel La Tour Birmingham, UK (174 rooms) for consideration amounting to €34.2 million in July and subsequently executed the sale and leaseback of the property with Deka Immobilien in August

o  Completed the purchase of the freehold interest of Maldron Hotel Portlaoise (€6.8 million) and the long leasehold interest of 232 rooms of Clayton Hotel Cardiff Lane through two separate transactions totalling €48.2 million

o  Through three separate transactions the Group acquired the business and 257 rooms at Clayton Hotel Liffey Valley for a total cost of €33.6 million

·     Completed the sale and leaseback of Clayton Hotel Cardiff at a yield of 4.85% with M&G Real Estate in June

·     889 rooms were refurbished during 2017 bringing the total number of refurbished rooms since 2015 to 2,270 (31% of owned and leased room stock)

·     €22.2 million was invested in capital refurbishment expenditure of which €7.6 million related to the upgrade of recently acquired hotels to brand standards

·     Introduced new technology to support and enhance our performance in revenue management, our customer booking journey, food and beverage sales analysis, payroll planning and control, procurement and financial reporting

Outlook

Trading is marginally ahead of expectations for quarter one of 2018 and outlook for the markets in which we operate remains positive. Our construction projects remain on target and within budget. Maldron Hotel Belfast City opens on 13 March and forward bookings are in line with our expectations. Maldron Hotel Kevin Street, Dublin and Clayton Hotel Charlemont, Dublin are projected to open in June and November respectively. Maldron Hotel South Mall, Cork is due to open in December. Maldron Hotel Newcastle is on track to open in early 2019. Extensions at Clayton Hotel Dublin Airport (May), Maldron Hotel Sandy Road Galway (June), Clayton Hotel Ballsbridge (August) and Maldron Hotel Parnell Square (December) are all under construction and due to open on time in 2018 and within budget.

Dalata continue to actively seek opportunities to expand our portfolio in Ireland and the UK. We are confident that we will meet our goal of securing a further 1,200 rooms during 2018. We continue to be very encouraged by the reaction of developers and potential investors to the strength of our balance sheet covenant and operational expertise.

Pat McCann, Dalata Group CEO, said:

"2017 was another exciting time for Dalata and I am delighted with the progress we have made. The team at Dalata have delivered another year of strong earnings growth and met our target to announce 1,200 new rooms per year. 

Our hotels continued to outperform the market with RevPAR growth of 11.0% in Dublin (excluding Clayton Hotel Burlington Road²) versus the city as a whole of 7.7%. Including Clayton Hotel Burlington Road Dublin RevPAR increased by 9.2%. Hotels in Regional Ireland also performed well achieving RevPAR growth of 9.1%. I am particularly pleased with the performance at our UK hotels. Our London hotels achieved RevPAR growth of 11.9% versus the city growth of 4.4%. Our regional UK hotels showed RevPAR growth of 7.8%, with our hotels in Cardiff, Manchester and Leeds outperforming the market. These results are a testament to our decentralised model which continues to underpin everything we do and is central to our success.

I am pleased to report that the value of our property, plant and equipment is now almost €1 billion. The comparable amount at June 2014 was €23.9 million after we first listed on the stock exchange. This is a stark reminder of how fast we have grown and how far we have come in a relatively short space of time.

I am very satisfied with the revamp of our brand websites in 2017. We reviewed and simplified the booking process for our customers making it easier and faster for our customers to book directly with us. The response to our launch of "Click on Clayton" is being very well received and up-take to date has been very positive. The roll out of "Make it Maldron" is currently underway. Our customers are always at the heart of everything we do. In 2017 €22.2 million was invested in capital refurbishment expenditure. €14.6 million related to on-going refurbishment projects to ensure our hotels offer a superior standard to our customers and €7.6 million related to the upgrade of recently acquired hotels to brand standards. A further 889 rooms were refurbished during 2017 bringing the total number of refurbished rooms since 2015 to 2,270. We also continued to invest in our sales and marketing strategies to further increase the value and presence of the Group's Clayton and Maldron brands.

In 2017 we invested in technology to support our processes and ensure we are able to deliver our long-term growth strategy. We introduced a single accounting platform which will increase efficiency in our finance function across the Group. We also began the implementation of a new procurement system which will streamline our procurement process and in time deliver savings across the business. As of January 2018, every hotel in the Group now has the Opera Property Management System (PMS). We have implemented an automated revenue management system at some our larger hotels to provide powerful analytic data to aid decision making. I must stress this will only be used as a support tool for the Revenue Manager. We continue to see benefits from the 2016 roll-out of the Alkimii payroll management system across the Group, particularly in our food and beverage department profit margins.

We will continue to invest in our people and ensure they are highly trained and motivated. 157 people completed development programs in 2018. Developing our people within Dalata greatly reduces the operating risk of running and opening new hotels.

2015, 2016 and 2017 were busy years at Dalata and 2018 will be no different. I am really excited about the pipeline of hotels that we are opening in 2018. Maldron Hotel Belfast City opens in mid-March 2018, Maldron Hotel Kevin Street, Dublin opens in June, Clayton Hotel Charlemont, Dublin opens in November while Maldron Hotel South Mall, Cork opens  in December.

The management teams that will open and operate these new hotels have been developed within Dalata and I have full confidence in their ability to lead these hotels to success. Opening a new hotel is not an easy task and these hotel teams will have the full support of Central Office as they progress to achieve full operating performance over the next two to three years.

We will also complete significant extensions at Clayton Hotel Dublin Airport (May), Maldron Hotel Sandy Road, Galway (June), Clayton Hotel Ballsbridge (August) and Maldron Hotel Parnell Square (December). We received full planning permission in January 2018 at Tara Towers Hotel to develop a new hotel branded Maldron Hotel Merrion Road and 69 residential units. We have commenced the process to select a development partner.

We will also continue to deliver on our promise of announcing 1,200 new rooms per year. Our development team are actively looking for new sites located in our twenty target cities across the United Kingdom. I am very excited about the quantity and quality of opportunities that are coming our way at present".

ENDS

Principal Risks and Uncertainties

The Group's principal risks and uncertainties for 2018 are:

·     Geo-political events could result in uncertainty and have an impact on general economic activity in the UK and Ireland and further afield which in turn could impact on the numbers of people looking to stay at hotels in both countries

·     A significant reduction in the value of sterling would also make Ireland a more expensive destination for UK visitors which in turn could impact on the number of UK residents staying in Irish hotels. UK visitors are an important part of our business in Ireland but 85% of our rooms in Dublin are sold to either domestic consumers or visitors from countries other than the UK. Only 6% of our rooms sold in our Regional Ireland hotels are to UK customers. Additionally, the reduction in UK visitors to Ireland is currently being more than offset by the growth in visitors from other markets such as North America and Europe

·     A very significant proportion of EBITDA is generated by the Dublin hotel portfolio, and therefore any downturn in the Dublin market is likely to have a material impact on the Group's performance. There is also risk associated with increase in supply of rooms in the Dublin market in the future. However, demand for hotel rooms in Dublin continues to grow and the Group believes the market can support increases in supply. Additionally the UK expansion strategy will reduce the proportion of EBITDA produced out of Dublin over time

·     The opening of the four new hotels and hotel extensions in 2018 presents an operational risk that expected earnings may not materialise. The Group is minimising this risk by having teams in place and contracting business with corporates and tour operators well in advance of the hotels' opening dates. Senior management have considerable past experience and a strong track record of success at opening new hotels

·     As Dalata expands there is a risk that the organisation's unique culture and values could be damaged or it fails to retain key expertise and develop talent within the Group. The rollout of the Dalata business model is dependent on the availability of key people to manage the hotels and the retention of its strong culture. The Group is actively managing these risks through the development of the "Dalata Way" values programme and a sustainable development strategy, together with strong communication and training to all employees. The rollout of Dalata Online, an e-learning platform will also continue in 2018.

About Dalata

Dalata Hotel Group plc is Ireland's largest hotel operator with a growing presence in the United Kingdom. The Group's current portfolio consists of 38 hotels with over 7,600 rooms and an additional 2,234 rooms are currently being developed. Dalata successfully operates Ireland's two largest hotel brands, Clayton Hotels and Maldron Hotels across Ireland and the UK, as well as managing a small portfolio of partner properties. 26 of the hotels are owned by Dalata, nine hotels are operated under lease agreements and three are operated under management agreements. For the full year 2017, Dalata reported revenue of €348.5 million and a profit after tax of €68.3 million. Dalata is listed on the Main Market of the Irish Stock Exchange (DHG) and the London Stock Exchange (DAL).

For further information visit: www.dalatahotelgroup.com

Conference Call Details | Analysts & Institutional Investors

Management will host a conference call for analysts and institutional investors at 08:30 GMT (03:30 ET), today 27 February 2018, and this can be accessed using the contact details below.

From Ireland dial: [phone]

From the UK dial: [phone] 0804

From the USA dial: 631 913 1422

From other locations dial: [phone]

Participant PIN code: 53935616#

Contacts

Dalata Hotel Group plc	Tel [phone]
Pat McCann, CEO	[e-mail]
Dermot Crowley, Deputy CEO, Business Development & Finance
Sean McKeon, Company Secretary and Head of Risk and Compliance
Joint Company Brokers
Davy: Anthony Farrell	Tel [phone]
Berenberg: Ben Wright	T: [phone]
Investor Relations and PR | FTI Con sulting	Tel [phone]
Melanie Farrell	[e-mail]

Note on forward-looking information

This Announcement contains forward-looking statements, which are subject to risks and uncertainties because they relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Company or the industry in which it operates, to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. The forward-looking statements referred to in this paragraph speak only as at the date of this Announcement. The Company will not undertake any obligation to release publicly any revision or updates to these forward-looking statements to reflect future events, circumstances, unanticipated events, new information or otherwise except as required by law or by any appropriate regulatory authority.

2017 Financial Performance

The results show another remarkable year for Dalata with strong growth in revenue and profit in 2017. The Group increased earnings through (i) the very strong performance of the existing hotels within the portfolio, (ii) the full year contribution of hotels acquired in 2016 and (iii) the contribution from hotels acquired during 2017.

	2017		2016
	€'million		€'million
Revenue		348.5		290.6
Segments EBITDAR1		149.5		120.3
Rent		(30.8)		(25.4)
Segments EBITDA1		118.7		94.9
Central overheads		(12.4)		(9.2)
Share-based payment expense		(1.7)		(1.2)
Rental income		0.3		0.6
Adjusted EBITDA1		104.9		85.1
Acquisition-related costs		(1.3)		(2.7)
Net revaluation movements through profit or loss		(1.4)		0.3
Gain on disposal of property freehold interests and subsidiary		0.5		-
Impairment of goodwill		-		(10.3)
Stock exchange listing costs		-		(1.3)
Group EBITDA		102.7		71.1
Depreciation and amortisation charge		(15.8)		(15.5)
Operating profit		86.9		55.6
Finance costs		(9.6)		(11.5)
Profit before tax		77.3		44.1
Tax		(9.0)		(9.2)
Profit for the year		68.3		34.9
Basic earnings per share		37.2 cents		19.1 cents
Diluted earnings per share		36.9 cents		18.9 cents
Adjusted diluted earnings1 per share		37.9 cents		26.6 cents
Segments EBITDAR margin1		42.9%		41.4%

Hotel performance overview

Revenue increased by 19.9% to €348.5 million in 2017. The full year impact of acquisitions completed in 2016 contributed an additional €37.6 million while hotels acquired in 2017 contributed a further €7.0 million. The Group achieved a like for like increase in revenues of €22.4 million from the existing business. These increases were offset by the disposal of the leasehold interest of the Croydon Park Hotel which resulted in a decrease in revenue of €4.1 million and adverse foreign exchange movements in the value of sterling which also decreased revenue on previous year from the UK portfolio by €4.3 million.

The additional revenue was converted strongly to an extra €29.2 million in Segments EBITDAR, increasing Segment EBITDAR margin from 41.4% to 42.9%. Adjusted EBITDA increased by 23.3% to €104.9 million.

Rent increased due to the full year impact of Clayton Hotel Burlington Road, the lease on which was entered into in November 2016, the full year impact of The Gibson Hotel and additional performance related rent. The increases were partially offset by the rent saved through the purchase of long leasehold interests in Clayton Hotel Cardiff Lane and the purchase of the freehold interest of Maldron Hotel Portlaoise. They were also offset by the Group's purchase of a property (€1.4 million) and a revised lease for another property (€0.6 million) during 2017 which resulted in a release of €2.0 million estimated accruals and liabilities.

The Group's total number of rooms at leased and owned hotels increased from 7,104 at 31 December 2016 to 7,366 at 31 December 2017.

Geographical split	2017				2016
	Dublin	Regional Ireland	UK	Managed Hotels	Dublin	Regional Ireland	UK	Managed Hotels
Hotel numbers	15	12	8	3	14	12	8	7
Room numbers	3,992	1,643	1,731	308	3,699	1,637	1,768	909
% of revenue	57.6%	21.8%	20.0%	0.6%	52.3%	23.6%	23.2%	0.9%
% of segments EBITDA	61.2%	17.1%	20.0%	1.7%	56.4%	17.1%	23.7%	2.8%

Central Overheads

Central overheads comprise the costs of the Group's central functions that deliver strategic direction and development, support and enhance the operation of the hotels and manage the corporate reporting, compliance and treasury for the Group. These services include operations support, procurement, technology, brand development, sales and marketing, human resources, training and development, finance, corporate services including taxation, capital expenditure and business development.

Central overheads increased by €3.2 million versus 2016 due to the continued investment in the central office team. The Group have increased resources across all main functions as the team continue to support the growing portfolio in addition to seeking out new opportunities to grow further. During 2017, the Group started building a small central UK team which supports the hotels in the areas of operations, revenue management, sales and recruitment. This is a very early step in the evolution of the UK business as it provides a platform to support the growing UK business.  Central marketing spend also increased to support the growth of the two brands across all three regions.

Share-based payment expense

The non-cash, accounting charges for the Long-Term Incentive Plan (LTIP) and Save As You Earn scheme (SAYE) increased by €0.5 million driven by the cost of the LTIP and the very strong take-up in the SAYE scheme which is available to all full time employees.

Adjusting items to EBITDA

Management disclose adjusted EBITDA to show the underlying operating performance of the Group excluding the effects of impairment of goodwill (2016), revaluation movements through profit or loss and items considered by management to be non-recurring or unusual in nature. Acquisition-related costs have been excluded to give a more meaningful measure given the scale of acquisitions in 2016 and 2017 and the fluctuations in these costs in different years.

1. Acquisition costs

Acquisition costs relate to the purchase of Clayton Hotel Birmingham and certain parts of Clayton Hotel Liffey Valley. Acquisition costs were higher in 2016 due to a greater level of acquisition related activity.

2. Net revaluation movements through profit or loss

The Group adopts a revaluation policy for its hotel property assets. In 2017 the Group recorded revaluation losses of €2.7 million and a reversal of prior year revaluation losses of €1.3 million through profit or loss.

3. Impairment of Goodwill

In 2016, the Group recorded an impairment of goodwill of €10.3 million following impairment testing at year end where the carrying value of the asset was in excess of the 'value in use' estimates. Impairment testing was also carried out at 31 December 2017 but the Directors concluded that no impairment existed.

Depreciation

The depreciation charge only marginally increased from 2016 despite a significant amount of capital expenditure. As communicated at the H1 2017 results, management initiated a comprehensive review of the useful lives and residual values of the assets making up each of the hotels. This analysis broke down refurbishment projects into constituent parts and estimated useful lives on a line by line basis based on recent operational experience. As an example, this detailed review resulted in the average estimated useful life of a refurbished room moving from five to eight years. The review has had the effect of decreasing the 2017 annual depreciation charge and is a more accurate reflection of the current estimated useful lives of the assets.

Finance Costs

	2017		2016
	€'million		€'million
Total interest expense on loans		7.4		7.5
Impact of interest rate swaps and caps		1.3		1.2
Other finance costs		2.3		1.8
Net exchange loss on loans, borrowings and cash		0.2		1.0
Interest capitalised to property, plant and equipment		(1.6)		-
		9.6		11.5

Finance costs decreased by €1.9 million in 2017 predominately due to capitalised interest of €1.6 million. In line with accounting standards, the Group has capitalised interest on loans and borrowings which finance the construction of the new hotels in Ireland and the United Kingdom. The Group uses two capitalisation rates being the weighted average interest rate for sterling borrowings which is applied to UK projects and the weighted average rate for euro borrowings which is applied to Republic of Ireland projects.

Other finance costs include the negative yield on cash held in money-market funds and the amortisation of debt capitalised costs and commitment fees on loans and borrowings. The increase in other finance costs compared to 2016 is due to the amortisation of costs which were capitalised on the Group's loans and borrowings.

Tax charge

	2017		2016
Tax charge - € million		9.0		9.2
Profit before tax - € million		77.3		44.1
Effective tax rate1		11.6%		20.9%

The lower effective tax rate at 11.6% in 2017 is principally due to the impairment of goodwill in 2016 not being a tax deductible cost and the benefit of tax losses from previous acquisitions to which no value had been initially attributed. The effective tax rate for 2017 would have been 12.9% excluding the utilisation of these tax losses.

Earnings per share

	2017		2016
Basic earnings per share		37.2 cents		19.1 cents
Diluted earnings per share		36.9 cents		18.9 cents
Adjusted diluted earnings per share1		37.9 cents		26.6 cents

The Group's diluted earnings per share and adjusted diluted earnings per share increased by 95.2% and 42.5% respectively since 2016.

Profit bridge

The table below highlights the growth in earnings due to acquisition activity and a strong performance increase in the existing business. The Group achieved a strong conversion of additional revenue in Dublin and Regional Ireland to EBITDAR with like for like conversion rates of 75.0% and 71.8% respectively. Conversion was lower in the UK which is explained later in the UK region commentary.

		Dublin			Regional Ireland			United Kingdom
€ million	2016	Full year impact of properties acquired in 20161	Properties acquired in 20172	Like for Like increase	Full year impact of properties acquired in 20163	Properties acquired in 20174	Like for Like increase	Full year impact of properties acquired in 20165	Properties acquired in 20176	Disposal of hotel7	Effect of FX	Like for Like increase	Net reduction in income from management contracts	2017
Revenue	290.6	32.5	3.5	12.8	3.6	-	3.9	1.4	3.5	(4.1)	(4.3)	5.7	(0.6)	348.5
Segments EBITDAR	120.3	15.5	0.9	9.6	0.5	-	2.8	0.3	0.6	(1.3)	(1.6)	2.5	(0.6)	149.5
Rent	(25.4)	(9.1)	1.2	1.0	0.4	0.4	-	1.1	(1.4)	1.0	0.1	(0.1)	-	(30.8)
Segments EBITDA	94.9	6.4	2.1	10.6	0.9	0.4	2.8	1.4	(0.8)	(0.3)	(1.5)	2.4	(0.6)	118.7
Segments EBITDAR margin	41.4%			75.0%			71.8%					43.9%		42.9%

1. Includes the acquisition of The Gibson Hotel (leased March 2016), Clayton Hotel Burlington Road (leased November 2016) and Tara Towers Hotel (January 2016)

2. Includes the acquisition of Clayton Hotel Liffey Valley (formerly Clarion Hotel, Liffey Valley) and the rent saving due to the acquisition of the freehold interest of certain elements of Clayton Hotel Cardiff Lane in 2017

3. Includes the March 2016 acquisition of the Clarion Group (Clayton Hotel Cork City, Clayton Hotel Limerick and Clayton Hotel Sligo) and the freeholds acquired at Clayton Hotel Limerick and Maldron Hotel Shandon Cork City in June 2016

4. Includes the acquisition of the Maldron Hotel Portlaoise freehold (May 2017)

5. Includes the acquisition of the Croydon Park Hotel (March 2016) and freehold acquisition of Clayton Hotel Cardiff (October 2016)

6. Includes the sale and leaseback of Clayton Hotel Cardiff in 2017 and the acquisition and subsequent sale and leaseback of Clayton Hotel Birmingham (formerly Hotel La Tour, Birmingham) in July 2017

7. Includes the disposal of a non-core asset at Croydon Park Hotel

Performance Review - Divisional Analysis

In the following section the Group's portfolio of hotels in Dublin, Regional Ireland and United Kingdom are analysed in detail.

1. Dublin Hotel Portfolio

	2017			2016
	€'million			€'million
Room revenue			141.7			107.3
Food and beverage revenue			46.2			35.4
Other revenue			12.8			9.2
Total revenue			200.7			151.9
EBITDAR			99.0			73.0
Rent			(26.4)			(19.5)
EBITDA			72.6			53.5
EBITDAR margin %			49.3%			48.0%
Performance Statistics
Performance statistics reflect full twelve month performance of the hotels in this portfolio for both periods regardless of when acquired with the exception of Clayton Hotel Burlington Road2 (leasehold interest entered into in November 2016).
	1 Jan 17 to 31 Dec 17			1 Jan 16 to 31 Dec 16
Occupancy			86.4%			85.1%
Average room rate			€114.52			€104.79
RevPAR			€99.00			€89.17
RevPAR % increase			11.0%
Performance statistics reflect full twelve-month performance of the hotels in this portfolio for both periods regardless of when acquired.
		1 Jan 17 to 31 Dec 17			1 Jan 16 to 31 Dec 16
Occupancy			85.9%			84.3%
Average room rate			€117.77			€109.96
RevPAR			€101.21			€92.67
RevPAR % increase			9.2%

The fifteen hotels in the Dublin portfolio consists of six Maldron hotels, six Clayton hotels, the Ballsbridge Hotel, Tara Towers Hotel and The Gibson Hotel. The Dublin portfolio operates 3,992 rooms representing 54.2% of the Group's total owned and leased room count. The results from the Dublin portfolio account for 57.6% of the Group's total revenue and 61.2% of the Group's Segments EBITDA.

The Dublin market performed strongly overall during 2017. Dalata's Dublin hotels (excluding Clayton Hotel Burlington Road) recorded a RevPAR growth of 11.0% in 2017, outperforming the Dublin market growth of 7.7%. The Group's Dublin hotels exceeded the market in both occupancy and average rate growth. In particular, The Gibson Hotel, Maldron Hotel Dublin Airport, Clayton Hotel Dublin Airport, Clayton Hotel Leopardstown, Clayton Hotel Cardiff Lane and Tara Towers Hotel all achieved double-digit RevPAR growth on 2016.

Food and beverage revenue increased by 30.5% which was predominately due to the full year impact of The Gibson Hotel and Clayton Hotel Burlington Road (leasehold interests acquired March and November 2016 respectively). In addition other revenue grew by €3.6 million (39.1%) primarily due to the full year impact of these two hotels and Clayton Hotel Liffey Valley.

EBITDAR from the Dublin hotels increased by €26.0 million to €99.0 million in 2017. The full year impact of the 2016 acquisitions of the Clayton Hotel Burlington Road and The Gibson Hotel contributed an additional €15.5 million while the 2017 acquisition of Clayton Hotel Liffey Valley contributed a further €0.9 million. The existing Dublin hotels achieved a like for like EBITDAR increase of €9.6 million, reflecting a 75.0% conversion of additional revenue. As a result, the EBITDAR margin in the Dublin hotels increased strongly from 48.0% to 49.3%.

Rent increased by €6.9 million since 2016 due to a number of factors. Rent increased by €9.1 million due to the full year impact of the acquisition of the leasehold interest at the Clayton Hotel Burlington Road (November 2016) and The Gibson Hotel (March 2016). There were increases in performance related rent payments in Ballsbridge Hotel and Maldron Hotel Dublin Airport. These increases were offset by a rent saving of €1.2 million due to the acquisition of certain elements of the freehold at Clayton Hotel Cardiff Lane. They were also offset due to the Group's purchase of a property (€1.4 million) and a revised lease for another property (€0.6 million) during 2017 which resulted in a €2.0 million release of estimated accruals and liabilities.

2. Regional Ireland Hotel Portfolio

	2017		2016
	€'million		€'million
Room revenue		41.6		36.1
Food and beverage revenue		26.5		25.2
Other revenue		7.9		7.2
Total revenue		76.0		68.5
EBITDAR		21.5		18.2
Rent		(1.2)		(2.0)
EBITDA		20.3		16.2
EBITDAR margin %		28.3%		26.5%
Performance Statistics
Performance statistics reflect full twelve month performance of the hotels in this portfolio for both periods regardless of when acquired.
	1 Jan 17 to 31 Dec 17		1 Jan 16 to 31 Dec 16
Occupancy		75.5%		74.0%
Average room rate		€92.03		€86.16
RevPAR		€69.45		€63.68
RevPAR % increase		9.1%

The twelve hotels in Regional Ireland comprise six Maldron hotels and six Clayton hotels. The Regional Ireland portfolio operates 1,643 rooms and represents 21.8% of the Group's total revenue and 17.1% of the Group's Segments EBITDA. 70% of revenues in our Regional Ireland portfolio are generated in the cities of Cork, Galway and Limerick.

Dalata's hotels in Regional Ireland achieved a RevPAR growth year on year of 9.1%. RevPAR in our Cork hotels grew by 8.7% versus market growth of 13.6%. Maldron Hotel Shandon Cork City and Clayton Hotel Silver Springs outperformed the market. RevPAR growth at Clayton Hotel Cork City was held back by the impact of a significant refurbishment project and a change in the Global Distribution System (GDS). RevPAR in our Galway hotels grew by 6.6% versus market growth of 7.6%. Clayton Hotel Galway and Maldron Hotel Galway achieved higher than market RevPAR growth but Maldron Hotel Sandy Road was behind market growth due to the impact of (i) very strong trading performance in 2016 where the hotel benefitted from a very large number of rooms from a local project and (ii) the beginning of the redevelopment project at the hotel in the final quarter. Our Limerick hotels grew RevPAR by 18.4% versus the market growth of 13.2%.

Food and Beverage sales increased by €1.3m due to full year impact of Clayton Hotel Cork City, Clayton Hotel Limerick and Clayton Hotel Sligo (€1.1m) and €0.2 million growth in other properties on a like for like basis.

EBITDAR increased by €3.3 million in 2017. This was predominately driven by strong performance by the existing Regional Ireland hotels generating additional EBITDAR of €2.8 million and converting 71.8% of additional sales to EBITDAR. EBITDAR margin increased from 26.5% to 28.3% due to strong conversion of room sales to EBITDAR.

Rent decreased by €0.4 million due to the purchase of the freehold of Maldron Hotel Portlaoise (May 2017) and by a further €0.4 million due to the full year impact of the freehold acquisition of Maldron Hotel Shandon Cork City in September 2016 and Clayton Hotel Limerick in June 2016.

3. United Kingdom Hotel Portfolio (local currency)

	2017		2016
	£'million		£'million
Room revenue		42.0		37.9
Food and beverage revenue		14.0		13.4
Other revenue		5.1		4.2
Total revenue		61.1		55.5
EBITDAR		23.7		21.9
Rent		(2.9)		(3.3)
EBITDA		20.8		18.6
EBITDAR margin %		38.8%		39.4%
Performance Statistics
Performance statistics reflect full twelve month performance of the hotels in this portfolio for both periods regardless of when acquired excluding Croydon Park Hotel which was disposed of in June 2017.
	1 Jan 17 to 31 Dec 17		1 Jan 16 to 31 Dec 16
Occupancy %		83.0%		80.3%
Average room rate		£80.31		£75.67
RevPAR		£66.64		£60.78
RevPAR % increase		9.6%

The UK hotel portfolio comprises two hotels in London, four hotels in provincial UK and two hotels in Northern Ireland. The Group disposed of its leasehold interest in the non-core Croydon Park Hotel in June 2017. There are seven Clayton hotels and one Maldron hotel in the UK incorporating a total of 1,731 rooms. The results from the UK portfolio account for 20.0% of the Group's total translated revenue and 20.0% of the Group's translated Segments EBITDA.

Altogether the UK portfolio achieved a RevPAR growth of 9.6% on 2016. As anticipated the Group saw evidence of the slow-down in the UK market in the second half of the year. Hotels in the London portfolio achieved a strong RevPAR growth of 11.9%, surpassing the market growth of 4.4%. Clayton Hotel Chiswick enjoyed its first full year of trading since the hotel was extended and comprehensively refurbished.

The regional UK hotels also performed well recording a RevPAR growth of 7.8%. The Group's hotels in Leeds, Manchester and Cardiff significantly outperformed the market in terms of RevPAR growth.

EBITDAR increased by £1.8 million in 2017. This was predominately driven by the performance of the existing UK hotels. As anticipated, the margin achieved in Clayton Hotel Birmingham in the second half of 2017 is lower than the Group's normal margins as it takes time and initial expense to implement Dalata's decentralised operating model.  Excluding the results of Croydon Park Hotel and Clayton Hotel Birmingham, EBITDAR margin grew at our UK hotels from 40.2% to 40.5% despite cost pressures from increased pay rates, food price inflation and increases in municipal rates.

Rent has decreased by £0.4 million due to the disposal of Croydon Park Hotel in June 2017 and the freehold acquisition of Clayton Hotel Cardiff in October 2016. These savings were offset by the subsequent sale and lease backs of Clayton Hotel Cardiff in June 2017 and Clayton Hotel Birmingham in August 2017.

4. Managed Hotel Portfolio

	2017	2016
	€'million	€'million
Revenue and EBITDA	2.0	2.6

Income from management contracts continued to decrease in line with management's expectations as the number of hotels managed by the Group falls. The Group is not actively seeking any new hotels to manage.

Cash flow

The Group generated strong operating cashflow during the year. This cash was re-invested in the business and used to fund hotel refurbishment projects and further acquisitions.

	2017		2016
	€'million		€'million
Net cash from operating activities		95.2		77.8
Amounts paid for refurbishment capital expenditure		(14.6)		(12.4)
Interest and finance costs paid		(10.1)		(10.0)
Adjusting cash items		1.3		4.0
Net cash generated to fund acquisitions, development expenditure and loan repayments		71.8		59.4
Key performance indicators
Conversion of adjusted EBITDA to cash1		68.4%		69.8%
Net debt to Adjusted EBITDA1		2.4		2.4

The Group is committed to maintaining a low level of gearing on the balance sheet as demonstrated by a Net Debt to Adjusted EBITDA¹ of 2.4 at year end.  Adjusting cash items represent acquisition-related costs of €1.3 million in 2017 (2016: €2.7 million) and stock exchange listing costs of €1.3 million in 2016. These are added back to show how much cash would be generated on a normalised basis. The Group allocates approximately 4% of annual revenue to refurbishment capital expenditure to ensure the portfolio adheres to brand standards.

Strong balance sheet supporting future growth

	2017		2016
	€'million		€'million
Non current fixed assets
Property, plant and equipment		998.8		822.4
Goodwill and intangible assets		54.6		54.3
Other non-current assets		9.5		9.9
Current assets
Trade receivables, inventory and other		22.5		17.7
Cash		15.7		81.1
Total assets		1,101.1		985.4
Equity		737.4		620.4
Loans and borrowings		260.1		280.4
Trade and other payables		64.9		52.1
Other liabilities		38.7		32.5
Total equity and liabilities		1,101.1		985.4

The Group is committed to maintaining a strong balance sheet with an appropriate level of gearing to ensure it can withstand any unforeseen shocks to the business and that it retains a strong covenant to attract potential landlords and investors. Maintaining a strong balance sheet is vital for the Group's leasing strategy for expansion in the United Kingdom.

Property, plant and equipment

The value of the Group's property, plant and equipment was almost €1 billion at 31 December 2017. Property, plant and equipment increased by €176.4 million due to additions (€210.3 million), a net revaluation gain (€52.1 million) and capitalised borrowing costs of €1.6 million. These increases were offset by the sale and leaseback transactions of two hotels (€62.1 million), the depreciation charge (€15.7 million) and adverse foreign exchange movements in the value of sterling which decreased the value of the UK hotel assets by €10.0 million.

 A detailed breakdown of the €210.3 million additions is outlined in the table below.

	2017 €'million		2016 €'million
Hotel assets acquired (including development sites)		129.0		131.8
Expenditure on assets under construction		59.1		3.0
Refurbishment capital expenditure		14.6		12.4
Development capital expenditure		7.6		13.0
Additions to property, plant and equipment		210.3		160.2

As part of the acquisition of Clarion Hotel Liffey Valley (now trading as Clayton Hotel Liffey Valley) in August and Hotel La Tour, Birmingham (now trading as Clayton Hotel Birmingham) in July the Group acquired property assets valued at €22.7 million and €34.6 million respectively. Clayton Hotel Birmingham was subsequently sold and leased back through a separate transaction.

The Group purchased a further 104 rooms in the Clayton Hotel Liffey Valley in two separate transactions totalling €10.6 million, bringing the total owned room count to 257 bedrooms. Certain elements of the freehold interest of Clayton Hotel Cardiff Lane (232 rooms) were acquired in two distinct transactions totalling €48.2 million. The Group also purchased the freehold interest of Maldron Hotel Portlaoise for a cost of €8.5 million (the adjoining foodcourt was then sold to a third party for €1.7 million and this is included in disposals of property, plant and equipment). Acquisitions costs of €2.6 million incurred on these transactions were also capitalised.

The expenditure on assets under construction included €42.3 million for new builds and €16.8 million for the extensions of existing hotels.

In addition to the amount spent on acquisitions the Group spent €22.2 million in refurbishment capital expenditure. In total 889 rooms were refurbished during 2017. €14.6 million was invested in on-going maintenance to refurbish rooms and public areas, upgrade technology and ensure the Group continues to adhere to health and safety standards. A further €7.6 million was spent bringing new hotels in line with brand standards.

Financial Structure

			€'million
Loans and borrowings at 31 December 2016				280.4
New facilities drawn down				36.7
Capital repayment				(49.9)
Effect of foreign exchange movements				(8.2)
Amortisation of debt costs				1.1
Loans and borrowings at 31 December 2017				260.1

The Group had bank debt of €260.1 million at 31 December 2017, of which €196.5 million (£174.4 million) was denominated in sterling. On 6 July 2017, the Group increased the revolving credit facility by €50 million to €80 million. On 16 July the Group drew down £30.0 million from the multicurrency revolving credit facility to fund the purchase of Clayton Hotel Birmingham (formerly Hotel La Tour, Birmingham). This was subsequently repaid on 11 August 2017 after the sale and leaseback of the same property. On 28 December 2017, €2.5 million was drawn from the revolving credit facility.

At 31 December 2017 the Group had undrawn facilities of €99.7 million of which €77.5 million was in the form of a revolving credit facility and €22.2 million of a term loan facility.

The current debt facilities are due to expire in early 2020. However the Group is engaging with banking partners early to discuss refinancing options and strategies.

Goodwill and intangible assets

			€'million
Goodwill and intangible assets at 31 December 2016				54.3
Transferred from investment property during the year				0.7
Effect of movements in exchange rates				(0.4)
Total goodwill and intangible assets at 31 December 2017				54.6

There were no significant movements in the value of goodwill and other intangible assets during the year ended 31 December 2017.  The balance at year end is comprised of the following:

1.    Goodwill of €33.4 million - an impairment review of the goodwill valuation was carried out at 31 December 2017 and it was concluded that the value of €33.4 million was appropriate

2.    An intangible asset with an indefinite life representing the Group's leasehold interest in The Gibson Hotel, which was acquired as part of the Choice Hotel Group business combination in March 2016 is valued at €20.5 million

3.    A 2017 addition to other intangible assets amounting to €0.7 million representing the Group's interest in a sub-lease retained in respect of part of the Clayton Hotel Cardiff, UK following the sale and leaseback of the hotel property.

IFRS 16 Leases

IFRS 16 on leases applies to accounting periods commencing on or after 1 January 2019. Under the new standard, the distinction between operating and finance leases is removed for lessees and almost all leases are reflected in the statement of financial position. As a result, an asset (the right-of-use of the leased item) and a financial liability to pay rental expenses are recognised. Fixed rental expenses will be removed from the profit or loss account and replaced with finance costs on the lease liability and depreciation on the right-of-use asset. Variable lease payments which are dependent on external factors such as hotel performance will be recognised directly in profit or loss.

Despite the significant impact of the accounting change in the financial statements the Group foresees no impact on strategy, no impact on commercial negotiations for leases and no impact on cashflows.  Bank covenants as currently calculated under existing debt arrangements will not be impacted as their calculation is based on GAAP on date of entry into the agreements.

The full impact of this standard on the Group's financial position and performance continues to be assessed. The Group does not intend to early adopt IFRS 16 and prior year financial information will not be restated resulting in no impact on retained earnings on transition.

An illustrative example of how the standard could impact the Group will be presented in the annual report for the year ended 31 December 2017.

IFRS 15 Revenue from Contracts with Customers

Under IFRS 15, all revenue from customer contracts will be recorded on a gross basis with commissions deducted separately as cost of sales. The impact is limited to a reclassification between revenue and cost of sales in profit or loss, with no overall effect on profit.

If IFRS 15 had been effective from 1 January 2017, this would have resulted in an increase in revenue of €3.6 million for the year ended 31 December 2017, with a corresponding increase in cost of sales of the same amount.

The Group plans to adopt IFRS 15 in the consolidated financial statements for the year end 31 December 2018 and will restate the comparative numbers for the year ended 31 December 2017. Accordingly revenue will increase as it is presented on a gross basis and cost of sales will increase due to the inclusion of commissions.

¹ See glossary of Alternative Performance Measures ("APM") definitions and other definitions

² Clayton Hotel Burlington Road is excluded from the 'like for like' analysis because its performance in the transitional period since its November 2016 acquisition has a disproportionate impact as a result of its size

Glossary of Alternative Performance Measures ("APM") definitions and other definitions

Alternative Performance Measures:

1.    EBITDAR: non-GAAP measure representing earnings before rent, interest, tax, depreciation and amortisation (see note 2 to the condensed consolidated financial statements for calculation)

2.    EBITDA: non-GAAP measure representing earnings before interest, tax, depreciation and amortisation (see note 2 to the condensed consolidated financial statements for calculation)

3.    Adjusted EBITDA: non-GAAP measure representing earnings before interest, tax, depreciation and amortisation adjusted for revaluation movements and other items considered by management to be non-recurring or unusual in nature. See note 2 to the condensed consolidated financial statements for calculation

4.    Adjusted Diluted EPS: non-GAAP measure representing EPS adjusted for the net of tax effects of revaluation movements and other items considered by management to be non-recurring or unusual in nature (see note 8 to the condensed consolidated financial statements for calculation)

5.    Segments EBITDA: represents the EBITDA for reportable segments (see note 2 to the condensed consolidated financial statements for calculation)

6.    Segments EBITDAR: represents the 'Segments EBITDA' before rent (see note 2 to the condensed consolidated financial statements for calculation)

7.    Segments EBITDAR margin: represents Segments EBITDAR as a percentage of total revenue

8.    Net Debt to Adjusted EBITDA: represents loans and borrowings less cash and cash equivalents divided by Adjusted EBITDA (see note 2 and note 6 to the condensed consolidated financial statements for calculation of adjusted EBITDA and net debt)

9.    Effective tax rate: represents the annual tax charge divided by the profit before tax presented in the condensed consolidated statement of profit or loss and other comprehensive income for the year ended 31 December 2017. See calculation below

€'million		2017	2016
Tax charge (per the condensed consolidated statement of profit or loss and other comprehensive income)		9.0	9.2
Profit before tax (per the condensed consolidated statement of profit or loss and other comprehensive income)		77.3	44.1
Effective tax rate		11.6%	20.9%

10.  Conversion of adjusted EBITDA to cash: represents the amount of 'Adjusted EBITDA' converted to cash available to fund acquisitions, development expenditure and loan repayments. The cash figure is calculated as net cash from operating activities, less amounts paid for interest and finance costs, refurbishment capital expenditure and after adding back cash paid in respect of adjusting items to EBITDA. See calculation below

€'million		2017		2016
Net cash from operating activities (per the condensed consolidated statement of cash flows)		95.2		77.8
Interest and finance costs paid (per the condensed consolidated statement of cash flows)		(10.1)		(10.0)
Amounts paid for refurbishment capital expenditure (see note (i) below)		(14.6)		(12.4)
Add back adjusting cash items:
Acquisition-related costs		1.3		2.7
Stock exchange listing costs		-		1.3
Net cash generated to fund acquisitions, development expenditure and loan repayments		71.8		59.4
Adjusted EBITDA		104.9		85.1
Conversion of adjusted EBITDA to cash		68.4%		69.8%
(i) Calculation of "refurbishment capital expenditure"
Assets under construction		59.1		3.1
Development capital expenditure		7.5		13.0
Refurbishment capital expenditure		14.6		12.4
Other additions through capital expenditure (per note 5 to the condensed consolidated financial statements)		81.2		28.5

Other definitions:

1.    RevPAR: Revenue per available room: calculated as total rooms revenue divided by number of available rooms, which is also equivalent to the occupancy rate multiplied by the average daily room rate achieved

Dalata Hotel Group plc
Condensed consolidated statement of profit or loss and other comprehensive income
for the year ended 31 December 2017
				2017	2016
		Note		€'000	€'000
Continuing operations
Revenue		2		348,474	290,551
Cost of sales				(128,258)	(109,864)
Gross profit				220,216	180,687
Administrative expenses, including goodwill impairment of €nil (2016: €10.325 million)				(134,032)	(125,717)
Other income				739	637
Operating profit				86,923	55,607
Finance costs				(9,636)	(11,496)
Profit before tax				77,287	44,111
Tax charge				(8,979)	(9,188)
Profit for the year attributable to owners of the Company				68,308	34,923
Other comprehensive income
Items that will not be reclassified to profit or loss
Revaluation of property		5		53,533	66,403
Related deferred tax				(5,498)	(6,382)
				48,035	60,021
Items that are or may be reclassified subsequently to profit or loss
Exchange difference on translating foreign operations				(9,309)	(35,730)
Gain on net investment hedge				7,127	24,876
Fair value movement on cash flow hedges				269	(3,740)
Cash flow hedges - reclassified to profit or loss				1,348	1,206
Related deferred tax				(203)	316
				(768)	(13,072)
Other comprehensive income for the year, net of tax				47,267	46,949
Total comprehensive income for the year attributable to owners of the Company				115,575	81,872
Earnings per share
Basic earnings per share		8		37.2 cents	19.1 cents
Diluted earnings per share		8		36.9 cents	18.9 cents

Dalata Hotel Group plc
Condensed consolidated statement of financial position
at 31 December 2017
	Note	2017	2016
Assets		€'000	€'000
Non-current assets
Intangible assets and goodwill		54,562	54,267
Property, plant and equipment	5	998,812	822,444
Investment property		1,585	3,245
Deferred tax assets		3,571	1,894
Other receivables		4,343	4,748
Derivatives		1	7
Total non-current assets		1,062,874	886,605
Current assets
Trade and other receivables		20,704	15,874
Inventories		1,765	1,817
Cash and cash equivalents		15,745	81,080
Total current assets		38,214	98,771
Total assets		1,101,088	985,376
Equity
Share capital		1,837	1,830
Share premium		503,113	503,113
Capital contribution		25,724	25,724
Merger reserve		(10,337)	(10,337)
Share-based payment reserve		2,753	2,126
Hedging reserve		(1,692)	(3,106)
Revaluation reserve		155,106	107,531
Translation reserve		(12,156)	(9,974)
Retained earnings		73,045	3,475
Total equity		737,393	620,382
Liabilities
Non-current liabilities
Loans and borrowings	6	241,933	264,681
Deferred tax liabilities		31,858	25,051
Derivatives		1,778	3,401
Provision for liabilities		4,716	3,040
Total non-current liabilities		280,285	296,173
Current liabilities
Loans and borrowings	6	18,206	15,734
Trade and other payables		64,853	52,050
Current tax liabilities		351	1,037
Total current liabilities		83,410	68,821
Total liabilities		363,695	364,994
Total equity and liabilities		1,101,088	985,376

Dalata Hotel Group plc Condensed consolidated statement of changes in equity for the year ended 31 December 2017
					Attributable to owners of the Company
					Share-based
	Share	Share	Capital	Merger	payment	Hedging	Revaluation	Translation	Retained
	capital	premium	contribution	reserve	reserve	reserve	reserve	reserve	earnings	Total
	€'000	€'000	€'000	€'000	€'000	€'000	€'000	€'000	€'000	€'000
At 1 January 2017	1,830	503,113	25,724	(10,337)	2,126	(3,106)	107,531	(9,974)	3,475	620,382
Comprehensive income:
Profit for the year	-	-	-	-	-	-	-	-	68,308	68,308
Other comprehensive income
Exchange difference on translating foreign operations	-	-	-	-	-	-	-	(9,309)	-	(9,309)
Gain on net investment hedge	-	-	-	-	-	-	-	7,127	-	7,127
Revaluation of properties	-	-	-	-	-	-	53,533	-	-	53,533
Transfer of revaluation gains to retained earnings on sale of property	-	-	-	-	-	-	(460)	-	460	-
Fair value movement on cash flow hedges	-	-	-	-	-	269	-	-	-	269
Cash flow hedges - reclassified to profit or loss	-	-	-	-	-	1,348	-	-	-	1,348
Related deferred tax	-	-	-	-	-	(203)	(5,498)	-	-	(5,701)
Total comprehensive income for the year	-	-	-	-	-	1,414	47,575	(2,182)	68,768	115,575
Transactions with owners of the Company:
Equity-settled share-based payments (note 3)	-	-	-	-	1,690	-	-	-	-	1,690
Vesting of share awards	7	-	-	-	(1,063)	-	-	-	1,063	7
Additional costs of prior period share issues	-	-	-	-	-	-	-	-	(261)	(261)
Total transactions with owners of the Company	7	-	-	-	627	-	-	-	802	1,436
At 31 December 2017	1,837	503,113	25,724	(10,337)	2,753	(1,692)	155,106	(12,156)	73,045	737,393

Dalata Hotel Group plc Condensed consolidated statement of changes in equity for the year ended 31 December 2016
					Attributable to owners of the Company
					Share-based
	Share	Share	Capital	Merger	payment	Hedging	Revaluation	Translation	Retained
	capital	premium	contribution	reserve	reserve	reserve	reserve	reserve	earnings	Total
	€'000	€'000	€'000	€'000	€'000	€'000	€'000	€'000	€'000	€'000
At 1 January 2016	1,830	503,113	25,724	(10,337)	912	(888)	47,510	880	(31,448)	537,296
Comprehensive income:
Profit for the year	-	-	-	-	-	-	-	-	34,923	34,923
Other comprehensive income
Exchange difference on translating foreign operations	-	-	-	-	-	-	-	(35,730)	-	(35,730)
Gain on net investment hedge	-	-	-	-	-	-	-	24,876	-	24,876
Revaluation of properties	-	-	-	-	-	-	66,403	-	-	66,403
Fair value movement on cash flow hedges	-	-	-	-	-	(3,740)	-	-	-	(3,740)
Cash flow hedges - reclassified to profit or loss	-	-	-	-	-	1,206	-	-	-	1,206
Related deferred tax	-	-	-	-	-	316	(6,382)	-	-	(6,066)
Total comprehensive income for the year	-	-	-	-	-	(2,218)	60,021	(10,854)	34,923	81,872
Transactions with owners of the Company:
Equity-settled share-based payments (note 3)	-	-	-	-	1,214	-	-	-	-	1,214
Total transactions with owners of the Company	-	-	-	-	1,214	-	-	-	-	1,214
At 31 December 2016	1,830	503,113	25,724	(10,337)	2,126	(3,106)	107,531	(9,974)	3,475	620,382

Dalata Hotel Group plc Condensed consolidated statement of cash flows for the year ended 31 December 2017
		2017	2016
		€'000	€'000
Cash flows from operating activities
Profit for the year		68,308	34,923
Adjustments for:
Depreciation of property, plant and equipment		15,710	15,477
Impairment of goodwill		-	10,325
Net revaluation movements through profit or loss		1,425	(241)
Share-based payment expense		1,690	1,214
Finance costs		9,636	11,496
Tax charge		8,979	9,188
Gains on disposal of property freehold interests and subsidiary		(469)	-
Amortisation of intangible asset		24	-
		105,303	82,382
Increase in trade payables and provision for liabilities		4,484	3,092
Increase in current and non-current receivables		(5,253)	(909)
Decrease/(increase) in inventories		62	(64)
Tax paid		(9,389)	(6,688)
Net cash from operating activities		95,207	77,813
Cash flows from investing activities
Acquisitions of undertakings through business combinations, net of cash acquired		(56,719)	(62,428)
Purchase of property, plant and equipment		(136,060)	(108,604)
Proceeds from sale of properties resulting in operating leases		57,985	-
Deposits paid on acquisitions		-	(1,024)
Net cash used in investing activities		(134,794)	(172,056)
Cash flows from financing activities
Interest and finance costs paid		(10,101)	(9,983)
Receipt of bank loans		36,680	57,607
Repayment of bank loans		(49,896)	(16,800)
Proceeds from vesting of share awards		7	-
Net cash (used in)/from financing activities		(23,310)	30,824
Net decrease in cash and cash equivalents		(62,897)	(63,419)
Cash and cash equivalents at the beginning of the year		81,080	149,155
Effect of movements in exchange rates		(2,438)	(4,656)
Cash and cash equivalents at the end of the year		15,745	81,080

Dalata Hotel Group plc

Notes to the condensed consolidated financial statements

1     General information and basis of preparation

Dalata Hotel Group plc (the 'Company') is a company domiciled in the Republic of Ireland. The Company's registered office is 4th Floor, Burton Court, Burton Hall Drive, Sandyford, Dublin 18.

The financial information presented here in these condensed consolidated financial statements does not comprise full statutory financial statements for 2017 or 2016 and therefore does not include all of the information required for full annual financial statements. The condensed consolidated financial statements of the Group for the year ended 31 December 2017 comprise the Company and its subsidiary undertakings and were authorised for issue by the Board of Directors on 26 February 2018. Full statutory financial statements for the year ended 31 December 2017, prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the EU, together with an unqualified audit report thereon under Section 391 of the Companies Act 2014, will be annexed to the annual return and filed with the Registrar of Companies. The full statutory financial statements for 2016 have already been filed with the Registrar of Companies with an unqualified audit report thereon.

These condensed consolidated financial statements are presented in Euro, rounded to the nearest thousand, which is the functional currency of the parent company and also the presentation currency for the Group's financial reporting.

The preparation of financial statements in accordance with IFRS as adopted by the EU requires the Directors to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as disclosure of contingent assets and liabilities, at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting year. Such estimates and judgements are based on historical experience and other factors, including expectation of future events, that are believed to be reasonable under the circumstances and are subject to continued re-evaluation. Actual outcomes could differ from those estimates.

Revision of estimated useful lives of property, plant and equipment

The Group reviews the useful lives of its property, plant and equipment at least annually to determine whether the existing estimated useful lives remain appropriate. Arising from the Group's assessment during the year ended 31 December 2017, the Group has revised its estimate of the useful lives of its fixtures, fittings and equipment. Previously the average estimated useful life was 5 to 10 years whereas, as a result of the change in estimate, the average estimated useful life is 3 to 15 years depending on the categorisation of asset. Were the previous useful lives applied for the year ended 31 December 2017, this would have resulted in a total depreciation charge in respect of the Group's property, plant and equipment of €19.7 million, which is €4.0 million higher than the recognised depreciation charge of €15.7 million in profit or loss for the year. It is impracticable to disclose the prospective impact of this change beyond the end of 2017 on the basis that this would require the Group to further estimate the timing, quantum and asset classification of future capital expenditure.

The key judgements and estimates impacting these condensed consolidated financial statements are:

·      Accounting for acquisitions, including allocation of consideration to assets and liabilities acquired and the treatment of acquisition costs (note 4);

·      Carrying value, depreciation and estimated useful lives of own-use property measured at fair value (note 5); and

·      Carrying value of goodwill and intangible assets including assumptions underpinning the impairment tests.

The accounting policies applied in these condensed consolidated financial statements are consistent with those applied in the consolidated financial statements for the year ended 31 December 2016, except for the application for the first time of the accounting policy in respect of the capitalisation of borrowing costs in relation to qualifying assets as described below.

Extract from the Group's accounting policy in respect of finance income and costs

Finance costs incurred for qualifying assets, which take a substantial period of time to construct, are added to the cost of the asset during the period of time required to complete and prepare the asset for its intended use. The Group uses two capitalisation rates being the weighted average interest rate, including the cost of hedging for Sterling borrowings, which is applied to United Kingdom qualifying assets and the weighted average interest rate for Euro borrowings which is applied to Republic of Ireland qualifying assets. Capitalisation commences on the date on which the Group undertakes activities that are necessary to prepare the asset for its intended use. Capitalisation of borrowing costs ceases when the asset is ready for its intended use.

2     Operating segments

The segments are reported in accordance with IFRS 8 Operating Segments. The segment information is reported in the same way as it is reviewed and analysed internally by the chief operating decision makers, primarily the CEO, and Board of Directors.

The Group segments its leased and owned business by geographical region within which the hotels operate - Dublin, Regional Ireland and United Kingdom. These, together with managed hotels, comprise the Group's four reportable segments.

Dublin, Regional Ireland and United Kingdom segments

These segments are concerned with hotels that are either owned or leased by the Group. As at 31 December 2017, the Group owns 24 hotels (31 December 2016: 23 hotels) and has effective ownership of one further hotel which it operates (31 December 2016: one). It also owns the majority of one of the other hotels which it operates. The Group also leases nine hotel buildings from property owners (31 December 2016: 10) and is entitled to the benefits and carries the risks associated with operating these hotels.

The Group's revenue from leased and owned hotels is primarily derived from room sales and food and beverage sales in restaurants, bars and banqueting. The main costs arising are payroll, cost of goods for resale, commissions paid to online travel agents on room sales, other operating costs and, in the case of leased hotels, rent paid to lessors.

Managed Hotels segment

Under management agreements, the Group provides management services for third party hotel proprietors.

Revenue	2017	2016
	€'000	€'000
Dublin	200,705	151,945
Regional Ireland	76,040	68,467
United Kingdom	69,743	67,498
Managed Hotels	1,986	2,641
	______	______
Total revenue	348,474	290,551
	______	______

Revenue for each of the geographical locations represents the operating revenue (room revenue, food and beverage revenue and other hotel revenue) from leased and owned hotels situated in (i) Dublin, (ii) the rest of the Republic of Ireland and (iii) the United Kingdom.

Revenue from Managed Hotels represents the fees and other income earned from services provided in relation to partner hotels which are not owned or leased by the Group.

	2017	2016
	€'000	€'000
Segmental results - EBITDAR
Dublin	99,006	72,992
Regional Ireland	21,450	18,170
United Kingdom	27,036	26,505
Managed Hotels	1,986	2,641
	______	______
EBITDAR for reportable segments	149,478	120,308
	______	______
Segmental results - EBITDA
Dublin	72,630	53,472
Regional Ireland	20,271	16,231
United Kingdom	23,777	22,511
Managed Hotels	1,986	2,641
	______	______
EBITDA for reportable segments	118,664	94,855
	______	______
Reconciliation to results for the year
Segmental results - EBITDA	118,664	94,855
Rental income	270	637
Central costs	(12,371)	(9,146)
Share-based payments expense	(1,690)	(1,214)
	______	______
Adjusted EBITDA	104,873	85,132
Acquisition-related costs	(1,260)	(2,671)
Net property revaluation movements through profit or loss	(1,425)	241
Gains on disposal of property freehold interests and subsidiary	469	-
Impairment of goodwill	-	(10,325)
Stock exchange listing costs	-	(1,293)
	______	______
Group EBITDA	102,657	71,084
Depreciation of property, plant and equipment	(15,710)	(15,477)
Amortisation of intangible assets	(24)	-
Finance costs	(9,636)	(11,496)
	______	______
Profit before tax	77,287	44,111
Tax	(8,979)	(9,188)
	______	______
Profit for the year attributable to owners of the Company	68,308	34,923
	______	______

Group EBITDA represents earnings before interest, tax, depreciation and amortisation.

Adjusted EBITDA is presented as an alternative performance measure to show the underlying operating performance of the Group excluding the effects of impairment of goodwill (2016), revaluation movements through profit or loss, and items considered by management to be non-recurring or unusual in nature. Acquisition-related costs have been excluded to give a more meaningful measure given the scale of acquisitions in 2016 and 2017 and the fluctuations in these costs in different years. Consequently, Adjusted EBITDA represents Group EBITDA before:

·      Acquisition-related costs;

·      Net property revaluation movements through profit or loss (note 5);

·      Gains on disposal of property freehold interests and subsidiary;

·      Impairment of goodwill in 2016; and

·      Stock exchange listing costs in 2016.

The line item 'Central costs' includes costs of the Group's central functions including operations support, technology, sales and marketing, human resources, finance, corporate services and business development. Share-based payments expense is presented separately from Central costs as this expense relates to employees across the Group.

'Segmental results - EBITDA' for Dublin, Regional Ireland and United Kingdom represents the 'Adjusted EBITDA' for each geographical location before Central costs, share-based payments expense and excluding rental income. It is the net operational contribution of leased and owned hotels in each geographical location.

'Segmental results - EBITDA and EBITDAR' for managed hotels represents fees earned from services provided in relation to partner hotels. All of this activity is managed through Group central office and specific individual costs are not allocated to this segment.

'Segmental results - EBITDAR' for Dublin, Regional Ireland and United Kingdom represents 'Segmental results - EBITDA' before rent. For leased hotels, rent amounted to €30.8 million in 2017 (2016: €25.5 million).

Other geographical information

Revenue	2017				2016
	Republic of Ireland	United Kingdom	Total		Republic of Ireland	United Kingdom	Total
	€'000	€'000	€'000		€'000	€'000	€'000
Leased and owned hotels	276,745	69,743	346,488		220,412	67,498	287,910
Managed hotels	1,728	258	1,986		2,488	153	2,641
	_____	_____	_____		_____	_____	_____
Total revenue	278,473	70,001	348,474		222,900	67,651	290,551
	_____	_____	_____		_____	_____	_____

Assets and liabilities	At 31 December 2017				At 31 December 2016
	Republic of Ireland	United Kingdom	Total		Republic of Ireland	United Kingdom	Total
	€'000	€'000	€'000		€'000	€'000	€'000
Assets
Intangible assets and goodwill	41,588	12,974	54,562		41,588	12,679	54,267
Property, plant and equipment	758,192	240,620	998,812		575,782	246,662	822,444
Investment property	1,585	-	1,585		1,750	1,495	3,245
Other non-current assets	3,231	1,112	4,343		4,748	-	4,748
Current assets	29,708	8,506	38,214		88,169	10,602	98,771
	______	______	______		______	______	______
Total assets excluding derivatives and tax assets	834,304	263,212	1,097,516		712,037	271,438	983,475
	______	______			______	______
Derivatives			1				7
Deferred tax assets			3,571				1,894
			______				______
Total assets			1,101,088				985,376
			______				______
Liabilities
Loans and borrowings	63,627	196,512	260,139		76,776	203,639	280,415
Trade and other payables	52,978	11,875	64,853		42,760	9,290	52,050
	______	______	______		______	______	______
Total liabilities excluding provisions, derivatives and tax liabilities	116,605	208,387	324,992		119,536	212,929	332,465
	______	______			______	______
Provisions			4,716				3,040
Derivatives			1,778				3,401
Current tax liabilities			351				1,037
Deferred tax liabilities			31,858				25,051
			______				______
Total liabilities			363,695				364,994
			______				______
Revaluation reserve	139,802	15,304	155,106		98,238	9,293	107,531
	______	______	______		______	______	______

The above information on assets and liabilities and revaluation reserve is presented by country as it does not form part of the segmental information routinely reviewed by the chief operating decision makers.

Loans and borrowings are categorised according to their underlying currency. Loans and borrowings denominated in Sterling, which act as a net investment hedge, of €196.5 million (£174.4 million) at 31 December 2017 (2016: €203.6 million (£174.4 million)) are classified as liabilities in the United Kingdom. Loans and borrowings denominated in Euro are classified as liabilities in the Republic of Ireland.

3     Long-term incentive plans

       Equity-settled share-based payment arrangements

During the year ended 31 December 2017, the Board approved the conditional grant of 829,049 ordinary shares ('the Award') pursuant to the terms and conditions of the Group's 2017 Long Term Incentive Plan ('the 2017 LTIP'). The Award was made to senior employees across the Group (79 in total). Vesting of the Award is based on two independently assessed performance targets, each one representing 50% of the Award. The first is based on earnings per share ('EPS') and the second on total shareholder return ('TSR'). The performance period for the award is 1 January 2017 to 31 December 2019 and 25% of the award will vest at threshold performance, provided service conditions attaching to the awards are met. Threshold performance for the TSR condition is performance in line with the Dow Jones European STOXX Travel and Leisure Index with 100% vesting for outperformance of the index by 10% per annum. Threshold performance for the EPS condition, which is a non-market based performance condition, is based on the achievement of adjusted basic EPS, as disclosed in the Company's 2019 audited financial statements, of €0.37 with 100% vesting for EPS of €0.46 or greater. Awards will vest on a straight-line basis for performance between these points.

The total expected cost of this award was estimated at €1.86 million over the three-year service period of which €0.38 million has been expensed to profit or loss for the year ended 31 December 2017. The remaining €1.48 million will be charged to profit or loss in equal instalments over the remainder of the three-year vesting period.

€1.0 million has been charged against profit for the year ended 31 December 2017 for the awards made in 2014, 2015 and 2016.

During the year ended 31 December 2017, the company issued 714,298 shares on foot of the vesting of awards granted under the 2014 LTIP. Over the course of the three-year performance period, 39,856 share awards lapsed due to vesting conditions which were not satisfied. The weighted average share price at the date of exercise for awards exercised during the year was €5.01. No awards vested or were exercised during the year ended 31 December 2016.

Summary of expense charged to profit or loss relating to awards granted at the below dates:
	May 2017	March 2016	October 2015	March 2015	March 2014	Total
	€'million	€'million	€'million	€'million	€'million	€'million
Total expected cost of award	1.86	1.43	0.20	1.08	1.06	5.63
Amount charged against profit for year ended:
31 December 2017	(0.38)	(0.48)	(0.06)	(0.37)	(0.09)	(1.38)
31 December 2016	-	(0.40)	(0.06)	(0.35)	(0.35)	(1.16)
31 December 2015	-	-	(0.02)	(0.27)	(0.35)	(0.64)
31 December 2014	-	-	-	-	(0.27)	(0.27)
Total amount charged against profit profit for year ended:	(0.38)	(0.88)	(0.14)	(0.99)	(1.06)	(3.45)
Remaining amount	1.48	0.55	0.06	0.09	-	2.18

The remaining amount will be charged to profit or loss in equal instalments over the remainder of the three year vesting period for each award.

	Number of share awards granted
	2017	2016
Outstanding share awards granted at beginning of year	2,088,379	1,448,468
Share awards granted during the year	829,049	639,911
Share awards forfeited during the year	(88,551)	-
Share awards exercised during the year	(714,298)	-
Outstanding share awards granted at end of year	2,114,579	2,088,379

       Measurement of fair values

The fair value, at the grant date, of the TSR-based conditional share awards was measured using a Monte Carlo simulation model. Non-market based performance conditions attached to the awards were not taken into account in measuring fair value at the grant date. The valuation and key assumptions used in the measurement of the fair values at the grant date were as follows.

	May 2017	March 2016	October 2015	March 2015
Fair value at grant date	€2.14	€2.45	€2.43	€1.92
Share price at grant date	€5.09	€4.69	€4.27	€3.55
Exercise price	€0.01	€0.01	€0.01	€0.01
Expected volatility	25.89% p.a.	30.20% p.a.	26.40% p.a.	26.03% p.a.
Dividend yield	1.5%	1.5%	1.5%	1.5%
Performance period	3 years	3 years	3 years	3 years

For measurement purposes, the dividend yield is based upon adjusted non-zero yields as though the Group was a zero-dividend yield company at these dates that may not be reflective over the longer term. This percentage is not in any way indicative of the expected dividend yield of the Group. This will be decided by the Board of Directors as appropriate. Expected volatility is based on the historical volatility of the Company's share price for the 2016 and 2017 awards and of a comparator group of companies for awards in prior periods.

The 2017 LTIP includes EPS-based conditional share awards. The EPS-related performance condition is a non-market performance condition and does not impact the fair value of the award at the grant date. Instead, an estimate is made by the Group as to the number of shares which are expected to vest based on satisfaction of the EPS-related performance condition, and this, together with the fair value of the award at grant date, determines the accounting charge to be spread over the vesting period. The estimate of the number of shares which are expected to vest is reviewed in each reporting period over the vesting period of the award and the accounting charge is adjusted accordingly.

       Save As You Earn Scheme

During the year ended 31 December 2017, the Remuneration Committee of the Board of Directors approved the granting of share options under a Save As You Earn ('SAYE') Scheme (the 'Scheme) for all eligible employees across the Group. 515 employees availed of the 2017 Scheme (379 employees availed of the 2016 Scheme). The Scheme is for three years and employees may choose to purchase shares at the end of the three year period at the fixed discounted price set at the start. The share price for the Scheme (as per the 2016 scheme) has been set at a 25% discount for Republic of Ireland based employees and 20% for United Kingdom based employees in line with the maximum amount permitted under tax legislation in both jurisdictions.

The total expected cost of the 2017 SAYE scheme was estimated at €0.8 million over the three year service period of which €0.08 million has been charged against profit for the year ended 31 December 2017.

€0.23 million has been charged against profit for the year ended 31 December 2017 for the SAYE awards made in 2016 (2016: €0.05 million).

Summary of expense charged to profit or loss relating to awards granted at the below dates:
	October 2017	October 2016	Total
	€'million	€'million	€'million
Total expected cost of award	0.82	0.71	1.53
Amount charged against profit for year ended:
31 December 2017	(0.08)	(0.23)	(0.31)
31 December 2016	-	(0.05)	(0.05)
Total cumulative amount charged against profit	(0.08)	(0.28)	(0.36)
Remaining amount	0.74	0.43	1.17

These charges, together with the expense in respect of the long-term incentive plan for the year of €1.38 million (2016: €1.16 million) represent the share-based payments expense which has been recognised for the year, with a corresponding increase in the share-based payment reserve.

The remaining €0.74 million in respect of the 2017 SAYE scheme will be charged against profit or loss in equal instalments over the remainder of the three year vesting period.

	Number of SAYE share options granted
	2017	2016
Outstanding share options granted at beginning of year	837,545	-
Share options granted during the year	702,888	837,545
Share awards forfeited during the year	(111,334)	-
Outstanding share options granted at end of year	1,429,099	837,545

4     Business combinations

       Acquisition of Clarion Hotel, Liffey Valley

On 31 August 2017, the Group acquired full ownership of the main element of the hotel and business of the Clarion Hotel, Liffey Valley, now trading as Clayton Hotel Liffey Valley, for total cash consideration of €23.0 million. Previously, the Group had been managing this hotel, under a management contract, on behalf of a receiver since March 2016. The fair value of the identifiable assets and liabilities acquired were as follows.

Recognised amounts of identifiable assets acquired and liabilities assumed	31 August 2017 Fair value
Non-current assets	€'000
Hotel property (land and buildings)	22,700
Fixtures and fittings	284
Current assets
Net working capital assets	16
Total identifiable net assets	23,000
Total consideration	23,000
Satisfied by:
Cash	23,000

The acquisition method of accounting has been used to consolidate the business acquired in the Group's condensed consolidated financial statements. No goodwill has been recognised on acquisition as the fair value of the net assets acquired equated to the consideration paid.

Acquisition-related costs of €0.8 million were charged to administrative expenses in profit or loss in respect of this business combination. 

Subsequent asset purchase transactions relating to Clarion Hotel, Liffey Valley

On 29 September 2017, in a separate transaction to the aforementioned business combination, the Group purchased the long leasehold interest of 33 suites in Clarion Hotel, Liffey Valley for €8.6 million plus capitalised acquisition costs of €0.3 million (note 5).

On 18 December 2017, in a further transaction to the aforementioned business combination, the Group purchased the long leasehold interest of 13 suites in Clarion Hotel, Liffey Valley for €2.0 million plus capitalised acquisition costs of €0.2 million (note 5).

These transactions have been accounted for as asset purchases and are included in additions to property, plant and equipment during the year (note 5).

       Acquisition of Hotel La Tour, Birmingham

On 21 July 2017, the Group acquired 100% of the share capital of Hotel La Tour Birmingham Limited, thereby acquiring full ownership of the property and business of Hotel La Tour, Birmingham, now trading as Clayton Hotel Birmingham, for cash consideration amounting to €34.2 million (£30.6 million). The fair value of the identifiable assets and liabilities acquired were as follows.

Recognised amounts of identifiable assets acquired and liabilities assumed	21 July 2017 Fair value
Non-current assets	€'000
Hotel property (land, buildings and fixtures and fittings)	34,565
Deferred tax asset	1,150
Current assets
Inventories	44
Trade and other receivables	595
Cash and cash equivalents	447
Current liabilities
Trade and other payables	(1,485)
Non-current liabilities
Deferred tax liability	(1,150)
Total identifiable net assets	34,166
Total consideration	34,166
Satisfied by:
Cash	34,166

The acquisition method of accounting has been used to consolidate the business acquired in the Group's condensed consolidated financial statements. No goodwill has been recognised on acquisition as the fair value of the net assets acquired equated to the consideration paid.

Acquisition-related costs of €0.5 million (£0.4 million) were charged to administrative expenses in profit or loss in respect of this business combination. 

Subsequently on 11 August 2017, the Group completed the sale of the Hotel La Tour, Birmingham property and entered into an operating lease in respect of the property (note 5).

Impact of new acquisitions on trading performance

The post-acquisition impact of acquisitions completed during 2017 on the Group's profit for the financial year ended 31 December 2017 was as follows.

	Clarion Hotel, Liffey Valley	Hotel la Tour, Birmingham	2017
	€'million	€'million	€'million
Revenue	2.4	3.4	5.8
Profit before tax and acquisition-related costs	0.6	-	0.6

If the acquisitions had occurred on 1 January 2017, the acquisitions would have contributed the following to the consolidated results of the Group.

	Clarion Hotel, Liffey Valley	Hotel la Tour, Birmingham	2017
	€'million	€'million	€'million
Revenue	6.5	7.5	14.0
Profit before tax and acquisition-related costs	2.0	0.4	2.4

These two transactions have added to the scale of the Group with the acquisition of Hotel La Tour, Birmingham increasing the geographical spread of the Group in line with the Group's strategy of expanding across larger UK cities.

Prior year acquisitions

Acquisition of Choice Hotel Group

On 11 March 2016, the Group completed the acquisition of the leasehold interests in four hotels from the Choice Hotel Group for a consideration of €38.9 million, as a result of which the Group directly operates the hotel businesses in these properties. The transaction increased the scale of the Group and strengthened its position in these locations.

The hotel leasehold interests acquired were:

·      The Gibson Hotel Dublin;

·      The Clarion Hotel, Limerick, now trading as Clayton Hotel Limerick;

·      The Clarion Hotel, Cork, now trading as Clayton Hotel Cork City; and 

·      The Croydon Park Hotel, Croydon, UK, (the Group has subsequently disposed of this leasehold interest).

During 2016, the Group also acquired full ownership of the property and business of the following hotels:

·      Tara Towers Hotel, Dublin: acquired 15 January 2016; and

·      Clarion Hotel, Sligo (now trading as Clayton Hotel Sligo): acquired 18 March 2016.

No goodwill was recognised on acquisitions in 2016 as the fair value of the net assets acquired equated to the consideration paid.

	Choice Hotel Group	Tara  Towers	Clarion Hotel, Sligo
	€'million	€'million	€'million
Hotel property (land and buildings)	14.0	13.2	12.9
Fixtures and fittings	-	-	0.2
Intangible assets	29.4	-	-
Net working capital liabilities	(1.6)	-	(0.3)
Net deferred tax liabilities and provisions	(2.9)	-	-
Total identifiable net assets	38.9	13.2	12.8
Goodwill	-	-	-
Total consideration	38.9	13.2	12.8
Satisfied by:
Cash	38.9	13.2	12.8

5          Property, plant and equipment

	Land and buildings	Assets under construction	Fixtures, fittings and equipment	Total
	€'000	€'000	€'000	€'000
At 31 December 2017
Valuation	848,777	-	-	848,777
Cost	-	97,365	75,931	173,296
Accumulated depreciation (and impairment charges) *	-	-	(23,261)	(23,261)
	_______	_______	_______	_______
Net carrying amount	848,777	97,365	52,670	998,812
	_______	_______	_______	_______
At 1 January 2017, net carrying amount	744,611	42,865	34,968	822,444
Acquisitions through business combinations	57,265	-	284	57,549
Other additions through freehold or site purchases	71,478	-	-	71,478
Other additions through capital expenditure	381	59,064	21,799	81,244
Disposals of property, plant and equipment	(61,139)	-	(922)	(62,061)
Reclassification from land and buildings to assets under construction and fixtures, fittings and equipment	(6,960)	495	6,465	-
Reclassification from assets under construction to land and buildings and fixtures, fittings and equipment for assets that have come into use	5,967	(7,020)	1,053	-
Transfer from investment properties	-	585	-	585
Transfer to investment properties	(385)	-	-	(385)
Capitalised borrowing costs	-	1,589	-	1,589
Revaluation gains through OCI	55,176	-	-	55,176
Revaluation losses through OCI	(1,643)	-	-	(1,643)
Reversal of revaluation losses through profit or loss	1,295	-	-	1,295
Revaluation losses through profit or loss	(2,471)	-	(284)	(2,755)
Depreciation charge for the year	(7,686)	-	(8,024)	(15,710)
Translation adjustment	(7,112)	(213)	(2,669)	(9,994)
	_______	_______	_______	_______
At 31 December 2017, net carrying amount	848,777	97,365	52,670	998,812
	_______	_______	_______	_______
The equivalent disclosure for the prior year is as follows.
At 31 December 2016
Valuation	744,611	-	-	744,611
Cost	-	42,865	50,205	93,070
Accumulated depreciation (and impairment charges) *	-	-	(15,237)	(15,237)
	_______	_______	_______	_______
Net carrying amount	744,611	42,865	34,968	822,444
	_______	_______	_______	_______
At 1 January 2016, net carrying amount	585,101	-	23,691	608,792
Acquisitions through business combinations	38,195	-	2,071	40,266
Other additions through freehold or site purchases	42,715	39,868	-	82,583
Transfer from intangible assets	8,900	-	-	8,900
Other additions through capital expenditure	7,228	3,043	18,211	28,482
Transfer from investment properties	36,032	-	-	36,032
Revaluation gains through OCI	67,901	-	-	67,901
Revaluation losses through OCI	(1,498)	-	-	(1,498)
Reversal of revaluation losses through profit or loss	988	-	-	988
Revaluation losses through profit or loss	(1,244)	-	-	(1,244)
Depreciation charge for the year	(7,489)	-	(7,988)	(15,477)
Translation adjustment	(32,218)	(46)	(1,017)	(33,281)
	_______	_______	_______	_______
At 31 December 2016, net carrying amount	744,611	42,865	34,968	822,444
	_______	_______	_______	_______
*Accumulated depreciation of buildings is stated after the elimination of depreciation, revaluation, disposals and impairments.

The carrying value of land and buildings is stated after the elimination of depreciation on revaluation.

The carrying value of land and buildings (revalued at 31 December 2017) is €848.8 million. The value of these assets under the cost model is €677.6 million. In 2017, unrealised revaluation gains of €55.2 million and unrealised losses of €1.6 million have been reflected through other comprehensive income and in the revaluation reserve in equity. A revaluation loss of €2.8 million and a reversal of prior period revaluation losses of €1.3 million have been reflected in administrative expenses through profit or loss.

Included in land and buildings at 31 December 2017 is land at a carrying value of €150.8 million (2016: €124.7 million) which is not depreciated. 

Acquisitions through business combinations during the year ended 31 December 2017 include the following:

·      Clarion Hotel Liffey Valley, now trading as Clayton Hotel Liffey Valley (note 4); and

·      Hotel La Tour, Birmingham now trading as Clayton Hotel Birmingham (note 4).

Other additions to land and buildings during the year ended 31 December 2017 include the following asset purchases.

·      Purchase of the long leasehold interest (freehold equivalent) in the ground and lower ground floors, 170 bedrooms and vacant ground floor area of Clayton Hotel Cardiff Lane for €39.5 million plus capitalised acquisition costs of €1.1 million;

·      Purchase of the long leasehold interest (freehold equivalent) of a further 24 suites (62 bedrooms) in the Clayton Hotel Cardiff Lane for €8.7 million plus capitalised acquisition costs of €0.5 million;

·      Purchase of the long leasehold interest (freehold equivalent) of 33 suites in the Clarion Hotel, Liffey Valley, now trading as Clayton Hotel Liffey Valley, for €8.6 million plus capitalised acquisition costs of €0.3 million;

·      Purchase of the long leasehold interest (freehold equivalent) of a further 13 suites in Clayton Hotel Liffey Valley for €2.0 million plus capitalised acquisition costs of €0.2 million;

·      Purchase of the freehold interest of Maldron Hotel Portlaoise, a hotel property previously operated under an operating lease by the Group and the adjoining foodcourt, for €8.5 million. The adjoining foodcourt was simultaneously sold to a third party for €1.7 million. The net cost of the transaction was €6.8 million plus capitalised acquisition costs of €0.4 million; and

·      Purchase of the freehold interest of Steamboat Quay Carpark, Clayton Hotel Limerick for €1.6 million plus capitalised acquisition costs of €0.1 million.

Additions to assets under construction during the year ended 31 December 2017 include the following:

·      Development expenditure incurred on new builds of €42.3 million;

·      Development expenditure incurred on hotel extensions of €16.8 million;

·      Interest capitalised on loans and borrowings relating to qualifying assets of €1.6 million; and

·      Arising from a change in use by the Group of a previously recognised investment property, €0.6 million has been transferred to property, plant and equipment from investment property.

Property previously classified as assets under construction has been transferred to land and buildings and fixtures and fittings as a result of the assets coming into use in 2017. This relates to additional bedrooms, a restaurant and staff facilities at Clayton Hotel Dublin Airport costing €7.0 million.

Arising from a change in use by the Group of previously recognised property, plant and equipment during the year as a result of securing a sub-lease in respect of the property, €0.4 million has been transferred to investment property from property, plant and equipment.

On 16 June 2017, the Group completed the sale and operating leaseback of the Clayton Hotel Cardiff for €25.1 million resulting in a gain on sale of €0.2 million. As part of this transaction the Group retained €2.4 million of fixtures and fittings and an intangible asset with a value of €0.7 million, representing the Group's interest in a sub-lease (as sub-lessor) in respect of a self-contained restaurant within the hotel. The Group now operates this hotel under an operating lease with a term of 35 years. Costs incurred in respect of this transaction amounting to €0.1 million have been included in profit or loss as part of the net gain on the sale of €0.2 million, included within other income.

On 11 August 2017, the Group completed the sale and operating leaseback of Hotel La Tour, Birmingham for €33.1 million (£30.0 million). Included within non-current prepayments is €1.1 million which represents the differential between the proceeds received and the acquisition price and will be deferred and amortised over the lease term as it represents up-front costs associated with entering the lease. The Group now operates this hotel under an operating lease with a term of 35 years.

During the year, the Group revised the estimated useful lives of its fixtures, fittings and equipment (note 1). Arising from the Group's assessment of the useful lives of its fixtures, fittings and equipment during the year, assets with a net book value of €7.0 million were reclassified from land and buildings to assets under construction and fixtures, fittings and equipment.

The Group operates the Maldron Hotel Limerick and, since the acquisition of Fonteyn Property Holdings Limited in 2013, holds a secured loan over that property. The loan is not expected to be repaid.  Accordingly, the Group has the risks and rewards of ownership and accounts for the hotel as an owned property, reflecting the substance of the arrangement. It is expected that the Group will obtain legal title to the property.

The value of the Group's property at 31 December 2017 reflects open market valuations carried out in December 2017 by independent external valuers having appropriate recognised professional qualifications and recent experience in the location and value of the property being valued. The external valuations performed were in accordance with the Valuation Standards of the Royal Institution of Chartered Surveyors.

At 31 December 2017, properties included within land and buildings with a carrying amount of €848.8 million were pledged as security for loans and borrowings.

Measurement of fair value

The fair value measurement of the Group's own-use property has been categorised as a Level 3 fair value based on the inputs to the valuation technique used. At 31 December 2017, 25 properties were revalued by independent external valuers engaged by the Group (31 December 2016: 23).

The principal valuation technique used by the independent external valuers engaged by the Group was discounted cash flows. This valuation model considers the present value of net cash flows to be generated from the property over a ten-year period (with an assumed terminal value at the end of Year 10). Valuers forecast cashflow included in these calculations represents the expectations of the valuers for EBITDA (driven by revenue per available room ("RevPAR") calculated as total rooms revenue divided by rooms available) for the property and also takes account of the expectations of a prospective purchaser. It also includes their expectation for capital expenditure which the valuers, typically, assume as approximately 4% of revenue per annum. This does not always reflect actual capital expenditure incurred by the Group. On specific assets, refurbishments are, by nature, periodic rather than annual. Valuers expectations of EBITDA are based off their trading forecasts (benchmarked against competition, market and actual performance). The expected net cash flows are discounted using risk adjusted discount rates. Among other factors, the discount rate estimation considers the quality of the property and its location.

The valuers use their professional judgement and experience to balance the interplay between the different assumptions and valuation influences. For example, initial discounted cash flows based on individually reasonable inputs may result in a valuation which challenges the price per key metrics in recent transactions. This would then result in one or more of the inputs being amended for preparation of a revised discounted cash flow. Consequently, the individual inputs may change from the prior period or may look individually unusual and therefore must be considered as a whole and the individual importance of any should not be over-estimated in the context of the overall valuation.

The significant unobservable inputs and drivers thereof are summarised in the following table.

Significant unobservable inputs
	31 December 2017
	Dublin	Regional Ireland	United Kingdom	Total
	Number of hotel assets
RevPAR
< €75/£75	1	7	4	12
€75-€100/£75-£100	3	3	2	8
> €100/£100	4	1	-	5
	8	11	6	25
Terminal (Year 10) capitalisation rate
<8%	1	2	2	5
8%-10%	7	9	4	20
	8	11	6	25
Price per key*
< €150k/£150k	2	10	4	16
€150k-€250k/£150k-£250k	2	-	1	3
> €250k/£250k	4	1	1	6
	8	11	6	25
	31 December 2016
	Dublin	Regional Ireland	United Kingdom	Total
	Number of hotel assets
RevPAR
< €75/£75	2	8	6	16
€75-€100/£75-£100	1	1	1	3
> €100/£100	3	1	-	4
	6	10	7	23
Terminal (Year 10) capitalisation rate
<8%	1	1	3	5
8%-10%	5	9	4	18
	6	10	7	23
Price per key*
< €150k/£150k	1	9	5	15
€150k-€250k/£150k-£250k	3	-	1	4
> €250k/£250k	2	1	1	4
	6	10	7	23

*Price per key represents the valuation of a hotel divided by the number of rooms in that hotel.

The valuers also applied risk adjusted discount rates of 9.50% to 11.75% for Dublin assets (31 December 2016: 9.50% to 11.75%), 9.00% to 12.00% for Regional Ireland assets (31 December 2016: 8.50% to 12.00%) and 8.50% to 12.50% for United Kingdom assets (31 December 2016: 8.50% to 11.75%).

The most significant factors which have impacted valuations this year are the uplifts on hotels where freeholds or freehold equivalents of previously leased buildings were acquired leading to crystallisation of a marriage value and reflection of continued improvements in trading performance across hotels which offset the impact of increased stamp duty rates during 2017 on most hotel valuations.

The estimated fair value under this valuation model would increase or decrease if:

·    Valuers forecast cashflow was higher or lower than expected; and/or

·    The risk adjusted discount rate and terminal capitalisation rate was lower or higher.

Valuations also had regard to relevant price per key metrics from hotel sales activity.

6     Interest-bearing loans and borrowings

	2017	2016
	€'000	€'000
Repayable within one year
Bank borrowings	19,300	16,800
Less: deferred issue costs	(1,094)	(1,066)
	_______	_______
	18,206	15,734
Repayable after one year
Bank borrowings	243,010	266,936
Less: deferred issue costs	(1,077)	(2,255)
	_______	_______
	241,933	264,681
	_______	_______
Total interest-bearing loans and borrowings	260,139	280,415
	_______	_______

Reconciliation of movement in net debt
	Sterling	Sterling	Euro
	facility	facility	facility	Total
	£'000	€'000	€'000	€'000
Interest-bearing loans and borrowings (excluding unamortised debt costs)
At 1 January 2017	174,352	203,639	80,097	283,736
Cash flows
New facilities drawn down	30,000	34,180	2,500	36,680
Capital repayment	(30,000)	(33,096)	(16,800)	(49,896)
Non-cash changes
Effect of foreign exchange movements	-	(8,211)	-	(8,211)
At 31 December 2017	174,352	196,512	65,797	262,309
Cash and cash equivalents
At 1 January 2017				81,080
Movement during the year				(65,335)
At 31 December 2017				15,745
Net debt at 31 December 2017				246,564
At 1 January 2016	132,352	180,328	89,200	269,528
Cash flows
New facilities drawn down	42,000	49,910	7,697	57,607
Capital repayment	-	-	(16,800)	(16,800)
Non-cash changes
Effect of foreign exchange movements	-	(26,599)	-	(26,599)
At 31 December 2016	174,352	203,639	80,097	283,736
Cash and cash equivalents
At 1 January 2016				149,155
Movement during the year				(68,075)
At 31 December 2016				81,080
Net debt at 31 December 2016				202,656

Net debt is calculated in line with the Group's loan facility agreement. As a result, at 31 December 2017 it excludes unamortised debt costs of €2.2 million (2016: €3.3 million) and interest rate swap liabilities of €1.8 million (2016: €3.4 million).

On 17 December 2014, the Group entered into a loan facility of €318 million (comprising of a €142 million Euro facility and a £132 million Sterling facility) with a syndicate of financial institutions. On 3 February 2015, the company drew down €282 million (comprising of a €106 million Euro facility and a £132 million Sterling facility) through five year term loan facilities with a maturity of 3 February 2020. The total loan facility of €318 million included a €20 million revolving credit facility. It also included a standby facility of €16 million which was not drawn and has since expired.

On 6 May 2016, the Group entered into a new multi-currency loan facility of €80 million with a maturity date of 3 February 2020 and increased the revolving credit facility from €20 million to €30 million. On 9 June 2016 under this facility, the Group drew down £18 million (€22.9 million) and €7.7 million. On 24 October 2016, the Group drew down a further £24 million (€27 million).

On 6 July 2017, the Group increased its revolving credit facility by €50 million to €80 million. On 16 July 2017, the Group drew down £30 million from the multi-currency revolving credit facility, which was subsequently repaid on 11 August 2017. On 28 December 2017, €2.5 million was drawn from the revolving credit facility. This amount is included in current liabilities. The undrawn loan facilities as at 31 December 2017 were €99.7 million, including €77.5 million of the revolving credit facility and €22.2 million of the other loan facilities.

The loans bear interest at variable rates based on 3 month Euribor/LIBOR plus applicable margins. The Group has entered into certain derivative financial instruments to hedge interest rate exposure on a portion of these loans. The loans are secured on the Group's hotel assets. Under the terms of the loan facility agreement, an interest rate floor is in place which prevents the Group from receiving the benefit of sub-zero benchmark LIBOR and Euribor rates.

7     Subsequent events

There were no events subsequent to 31 December 2017 which would require an adjustment to or a disclosure thereon in these condensed consolidated financial statements.

8     Earnings per share

Basic earnings per share is computed by dividing the profit for the year available to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share is computed by dividing the profit for the year by the weighted average number of ordinary shares outstanding and, when dilutive, adjusted for the effect of all potentially dilutive shares.  The following table sets out the computation for basic and diluted earnings per share for the years ended 31 December 2017 and 31 December 2016:

	2017	2016
Profit attributable to shareholders of the parent (€'000) - basic and diluted	68,308	34,923
Adjusted profit attributable to shareholders of the parent (€'000) - basic and diluted	70,228	49,040
Earnings per share - Basic	37.2 cents	19.1 cents
Earnings per share - Diluted	36.9 cents	18.9 cents
Adjusted earnings per share - Basic	38.3 cents	26.8 cents
Adjusted earnings per share - Diluted	37.9 cents	26.6 cents
Weighted average shares outstanding - Basic	183,430,226	182,966,666
Weighted average shares outstanding - Diluted	185,243,000	184,499,060

The difference between the basic and diluted weighted average shares outstanding for the year ended 31 December 2017 is due to the dilutive impact of the conditional share awards granted in 2015, 2016 and 2017 (note 3). There have been no adjustments made to the number of weighted average shares outstanding in calculating adjusted basic earnings per share and adjusted diluted earnings per share.

Adjusted diluted earnings per share is presented as an alternative performance measure to show the underlying performance of the Group excluding the tax adjusted effects of revaluation movements, goodwill impairment, gains on disposals of assets and items considered by management to be non-recurring or unusual in nature. Acquisition costs have been excluded to give a more meaningful measure given the scale of acquisitions in 2016 and 2017 and the fluctuations in these costs in different years.

		2017	2016
		€'000	€'000
Reconciliation to adjusted profit for the year
Profit before tax		77,287	44,111
Adjusting items (note 2)
Acquisition-related costs		1,260	2,671
Gains on disposal of property freehold interests and subsidiary		(469)	-
Net revaluation movements through profit or loss		1,425	(241)
Impairment of goodwill		-	10,325
Stock exchange listing costs		-	1,293
		______	______
Adjusted profit before tax		79,503	58,159
Tax		(8,979)	(9,188)
Tax adjustment for adjusting items		(296)	69
		______	______
Adjusted profit for the year		70,228	49,040
		______	______

9     Board approval

       This announcement including the condensed consolidated financial statements was approved by the Board on 26 February 2018.

 

END

 

 

FR UNARRWUAUUUR