Final Results

Peel Hotels PLC 07 April 2006 Peel Hotels Preliminary results for the year ended 12 February 2006 CHAIRMAN'S STATEMENT RESULTS Total turnover grew by 19.1% to £14,947,091 largely due to the acquisition of three leasehold hotels from Grace Hotels Ltd. on 16 May 2005. Operating profit was £2,437,750 (2005:£2,482,999) a decrease of 1.8%; there was £221,093 less Management Contract income against a maiden contribution of £154,364 from our acquisition. Depreciation was £107,854 more than the previous year. Earnings before interest, tax and depreciation were 1.9% more than the previous year at £3,448,259 (2005:£3,385,654). The pre-tax result was almost the same as the previous year at £1,181,991 (2005: £1,181,107). After a full tax provision less discounting, earnings per share were 7.0p basic and 6.8p on a diluted basis (2005:7.5p basic and 7.3p diluted). At 12 February 2006 net debt stood at £17,064,787 representing loans totalling £16,724,098 and an overdraft of £500,311 less £159,622 cash at bank. Gearing on shareholder's funds was 108% with interest covered 1.9 times. Net debt increased £1,128,093 compared with the previous year. A new loan for £2,500,000 repayable over ten years was arranged on 16 May 2005 which, in addition to £600,000 raised by placing 666,666 new shares successfully at 90p, funded the acquisition of the leaseholds of the Strathdon in Nottingham, the Crown and Mitre in Carlisle, and the King Malcolm in Dunfermline. Turnover growth slowed dramatically in the final quarter especially in January and February and this together with significant cost pressure, with energy for example, increasing by an annualised 40% and the negative impact of our predominantly seasonal new acquisitions, changed what would have been a very satisfactory year into a disappointing result. In view of the high operational gearing nature of the hotel industry it is equally important to grow sales as it is to control costs and these sales have always been hard to come by in the weeks after Christmas as UK plc gradually gets back to work. It is pleasing to report that Revpar (accommodation revenue per available bedroom) grew by 4.1% in the year with occupancy down by 2.8% and average room rate up by 7.1%, justifying our continued investment in our properties. Individually the hotel results were mixed, with the Bull in Peterborough, the Avon Gorge in Bristol, the Crown and Mitre in Carlisle having excellent results. The Golden Lion in Leeds strongly improved its profits on the previous year and still has substantial upside. The Caledonian in Newcastle had an extremely poor year on year performance: management changes have been made and the hotel's results are now stable and comparative figures have begun to improve. We continue to keep our properties well maintained and in good repair, in addition to increasing the minimum standard benchmarks each year. Expenditure on repairs and renewals in our hotels increased 16.9% from £504,158 to £589,207. FINANCE On 12 February 2006 net debt was £17,064,787 including the additional £2.5 million ten year loan drawn down to finance our recent acquisition. £1,113,405 was repaid during the period under review. The LIBOR rate on our 'cap and collar' on £7 million of our debt went below 4.99% at the date of fixing on 11 October 2005 and therefore prevented us from enjoying the benefit of a 2% annualised saving that we received in the period from 11 April 2005 to10 October 2005. The Board has recommended increasing the dividend from 4.5p per share to 4.75p per share, amounting to £608,576, which, if approved by shareholders, will be paid on 16 May 2006 to shareholders on the register at 5 May 2006. CAPITAL EXPENDITURE In addition to the acquisition of the 3 new hotels, a further £960,831 was spent on projects within the company which was £49,678 less than the depreciation charge for the period. £405,660 was spent on the Avon Gorge Hotel, where we have lodged five separate planning applications in order to develop the site to its full potential, whilst respecting the views and needs of the local community in Clifton. Shareholders will be aware that the location of this hotel is adjacent to the Clifton suspension bridge and the Avon Gorge, both of which are world heritage sites and therefore attract huge local interest. Briefly the plans lodged are for additional car parking, redevelopment of two houses, construction of an orangery, ten new bedrooms, together with a health spa under the existing terrace and lastly a new glass pavilion constructed above the 4,400 square foot ballroom which would be restored. We have opened The Bridge Caf? at the Avon Gorge Hotel together with a new kitchen and bar facilities. Seating well over 100 people it has a unique 'wind and waterproof deck' together with infra red heating where diners can sit outside protected from the elements whilst enjoying the fabulous view. The restaurant at the Bull Hotel in Peterborough has been restyled and the banqueting rooms have been upgraded with the addition of air conditioning. The redevelopment of the city centre of Bradford continues which augers well for the Midland Hotel. We are shortly to submit an application to the planners for 102 one bedroom and two bedroom apartments, together with retail space and car parking on our Salem Street site which is situated some 500 meters from the hotel. We would hope to dispose of this asset to a developer if and when we achieve planning consent. The company decided not to go to appeal with regard to the refusal by the Newcastle Council for the bedroom expansion of the Caledonian Hotel. We are investigating our various options in regard to Aire House which is a freehold property that we own adjacent to the Golden Lion Hotel in Leeds. SHAREHOLDERS We are always delighted when shareholders take advantage of our Shareholders' discount scheme. All Shareholders will now be entitled to 30% discount off the listed tariff, using the special reservation number, 020 7266 1100 or email info@peelhotel.com Shareholders can identify our hotels using the directory at the back of the Annual Report. We really do want Shareholders to visit and enjoy our hotels. STAFF The Board would like to thank all management and staff for their contribution to the business of Peel Hotels and the welfare of its guests. The continual improvement of the guest experience and the welfare and retention of our management and staff remains a top priority. I am delighted to report that in the year under review we achieved record staff retention within the company. THE FUTURE In spite of continuing to improve REVPAR the comparative decline of management contract income has historically had the effect of preventing earnings per share growth and decreasing ROS (return on sale). The Board believe that there is still considerable scope to improve performance within the hotel portfolio and this, together with the continual repayment of loans and disposal of non-core assets, should enable the company to achieve earnings growth. Surplus cash from the disposal of these assets would be available to accelerate the repayment of debt as well as funding the company's ambitious development plans. Robert Peel Chairman 7 April 2006 REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF PEEL HOTELS PLC We have audited the financial statements of Peel Hotels plc for the year ended 12 February 2006 which comprise the profit and loss account, the balance sheet, the cash flow statement and notes 1 to 25 These financial statements have been prepared under the accounting policies set out therein. This report is made solely to the company's members, as a body, in accordance with Section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditors' report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors The directors' responsibilities for preparing the Annual Report and the financial statements in accordance with United Kingdom law and Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the Statement of Directors' Responsibilities. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Companies Act 1985. We also report to you if, in our opinion, the Directors' Report is not consistent with the financial statements, if the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors' remuneration and other transactions is not disclosed. We read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. This other information comprises only the Chairman's Statement, the Directors' Report, the Corporate Governance Statement and the Directors' Remuneration Report. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the company's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In our opinion the financial statements: • give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the company's affairs as at 12 February 2006 and of the profit for the year then ended; and • have been properly prepared in accordance with the Companies Act 1985. GRANT THORNTON UK LLP REGISTERED AUDITORS CHARTERED ACCOUNTANTS LEEDS 7 April 2006 PROFIT AND LOSS ACCOUNT For the 52 weeks ended 12 February 2006 Note 12 February 2006 13 February 2005 -------- -------- --------- -------- £ £ £ £ Turnover 1 Original group 12,400,841 12,268,058 Discontinued business 63,608 284,701 Acquisitions 2,482,642 - Total turnover 14,947,091 12,552,759 -------- -------- --------- -------- Cost of sales (10,806,273) (8,519,697) -------- -------- --------- -------- Gross profit Original group 3,709,512 3,748,361 Discontinued business 63,608 284,701 Acquisitions 367,698 - Total gross profit 4,140,818 4,033,062 Administrative expenses Depreciation (1,010,509) (902,655) Other (692,559) (647,408) (1,703,068) (1,550,063) -------- -------- --------- -------- Operating profit Original group 2,219,778 2,198,298 Discontinued business 63,608 284,701 Acquisitions 154,364 - Total operating profit 2,437,750 2,482,999 Interest payable & similar charges 2 (1,255,759) (1,301,892) -------- -------- --------- -------- Profit on ordinary 3 1,181,991 1,181,107 activities before taxation Taxation 4 (293,288) (272,094) -------- -------- --------- -------- Profit on ordinary 888,703 909,013 activities after taxation -------- -------- --------- -------- Earnings per share 8 Basic 7.0p 7.5p Diluted 6.8p 7.3p -------- -------- --------- -------- Movements on reserves are shown in note 17 to the accounts. There are no recognised gains and losses for the current financial year and preceding financial year other than the profits shown above. The accompanying accounting policies and notes form an integral part of these financial statements. BALANCE SHEET As at 12 February 2006 Note 12 February 13 February 2005 2006 restated £ £ --------- -------- Fixed assets Tangible assets 9 35,520,467 32,657,793 --------- -------- Current assets Stocks 10 116,997 93,729 Debtors 11 965,574 1,045,243 Cash at bank and in hand 159,622 147,137 --------- -------- 1,242,193 1,286,109 Creditors (due within one year) 12 (3,336,634) (3,120,121) --------- -------- Net current liabilities (2,094,441) (1,834,012) --------- -------- Total assets less current liabilities 33,426,026 30,823,781 Creditors (due after one year) 13 a) (15,981,828) (14,589,414) Provision for liabilities & charges 15 (1,630,492) (1,346,778) --------- -------- Total assets 15,813,706 14,887,589 --------- -------- Capital and reserves Called up share capital 16 1,281,213 1,212,046 Share premium account 17 9,033,145 8,519,477 Profit and loss account 17 5,499,348 5,156,066 --------- -------- Equity shareholders' funds 17 15,813,706 14,887,589 --------- -------- The accompanying accounting policies and notes form an integral part of these financial statements. Approved by the board on 7 April 2006 Robert Peel, Director John Perkins, Director CASH FLOW STATEMENT For the 52 weeks ended 12 February 2006 Note £ 52 weeks to £ 52 weeks to 12 February 13 February 2006 2005 £ £ Net cash inflow 19 3,957,772 3,314,153 from operating activities Returns on investments & servicing of finance Interest paid (1,195,137) (1,294,185) Net cash outflow (1,195,137) (1,294,185) from returns on investments and servicing of finance Taxation UK corporation (24,140) (120,728) tax paid ----- -------- --------- -------- -------- Tax paid (24,140) (120,728) Capital expenditure Purchase of (3,873,183) (716,047) tangible fixed assets Net cash outflow (3,873,183) (716,047) from capital expenditure Equity dividend (545,421) (509,059) paid Net cash (1,680,109) 674,134 (outflow)/ inflow before financing Financing 621,873 - Issue of ordinary (39,038) - share capital Less share issue costs New long term 2,500,000 1,000,000 loan Less loan (25,000) - arrangement fees Loan repayments (1,113,405) (1,488,405) ----- -------- --------- -------- -------- Net cash inflow/ (outflow) from 1,944,430 (488,405) financing ----- -------- --------- -------- -------- Increase in cash 20 264,321 185,729 ----- -------- --------- -------- -------- Reconciliation of net debt Increase in cash 264,321 185,729 795,753) (Increase)/decrease in debt (1,361,595) 488,405 984,540 (Increase)/reduction in net debt (1,097,274) 674,134 188,787 resulting from cash flows Non cash changes (30,819) (26,403) (26,403) (Increase)/reduction in net debt in the year (1,128,093) 647,731 Net debt at beginning of year (15,936,694) (16,584,425) ---- -------- ------- -------- Net debt at end of year 20 (17,064,787) (15,936,694) ---- -------- ------- -------- The accompanying accounting policies and notes form an integral part of these financial statements. STATEMENT OF ACCOUNTING POLICIES 1. Basis of accounting The financial statements are prepared under the historical cost convention and in accordance with applicable United Kingdom accounting standards. The adoption of FRS 21 has resulted in a change in accounting policy in respect of proposed equity dividends. If the company declares dividends to the holders of equity instruments after the balance sheet date, the company does not recognise those dividends as a liability at the balance sheet date. The aggregate amount of equity dividends proposed before approval of the financial statements, which have not been shown as liabilities at the balance sheet date, are disclosed in the notes to the financial statements. Previously, proposed equity dividends were recorded as liabilities at the balance sheet date. This change in accounting policy has resulted in a prior year adjustment for the company. Shareholders' funds for the year ended 14 February 2004 have been increased by £509,059. For the year ended 13 February 2005, the change in accounting policy has resulted in a net increase in retained profit for the year of £545,421. The balance sheet at 13 February 2005 has been restated to reflect the de-recognition of a liability for proposed equity dividends of £545,421. 2. Basis of preparation The financial year consists of the 52 weeks ended 12 February 2006. 3. Acquisitions On the acquisition of a business, fair values are attributable to the company's share of net separable assets. Where the cost of acquisition exceeds the fair values attributable to such net assets, the difference is treated as purchased goodwill and, following the implementation of FRS 10, is capitalised in the company balance sheet in the year of acquisition. The results and cash flows relating to a business are included in the profit and loss account and the cash flow statement from the date of acquisition. 4. Turnover Turnover represents amounts receivable from the provision of hotel services including room hire, bar and restaurant takings and are stated after deduction of value added tax. Also included are management contract fees and commission receivable for the management of other hotels not belonging to the company. 5. Stocks Stocks are stated at the lower of cost and net realisable value. 6. Leases Operating lease rentals are charged to profit and loss account as incurred. 7. Fixed assets and depreciation It is the company's policy to maintain its properties to a high standard in order to protect its trade. Depreciation is charged on freehold and long leasehold properties, excluding freehold land, at a rate calculated to write off the cost, less residual value, on a straight line basis, over 50 years. Short leasehold properties are written off over the remaining period of the lease. On other assets depreciation is charged to write off their costs by equal annual instalments over their estimated useful lives, which are considered to be: Plant, fixtures and fittings, and equipment 10 years Soft furnishings 8 years Office equipment 5 years Computer equipment 3 years STATEMENT OF ACCOUNTING POLICIES 8. Deferred taxation Deferred tax is provided in full on timing differences, which result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in financial statements. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered. Deferred tax is measured on a discounted basis to reflect the time value of money over the period between the balance sheet date and the dates on which it is estimated that the underlying timing differences will reverse. 9. Capital instruments Capital instruments are recorded at the fair value of the consideration received less issue costs in accordance with FRS4. The difference between the net proceeds of the issue and the total amounts of payments that the issuer may be required to make is recorded as a finance cost of the instrument and written off over the life of the instrument. 10. Pensions The company operates a money purchase pension scheme on behalf of individual employees. Contributions to the scheme are charged against profits in the period in which they arise. 11. Derivative financial instruments The company uses derivative financial instruments to reduce exposure to interest rate movements. The company does not hold or issue derivative financial instruments for speculative purposes. For an interest rate swap to be treated as a hedge the instrument must be related to actual assets or liabilities or a probable commitment and must change the nature of the interest rate by converting a fixed rate to a variable rate or vice versa. Interest differentials under these swaps are recognised by adjusting net interest payable over the period of the contracts. If an instrument ceases to be accounted for as a hedge, for example because the underlying hedged position is eliminated, the instrument is marked to market and any resulting profit or loss recognised at that time. NOTES TO THE ACCOUNTS Financial year ended 12 February 2006 1. Turnover and profit Turnover represents amounts derived from the provision of goods and services which fall within the company's ordinary activities after deduction of value added tax. All of the turnover and profit on ordinary activities before taxation arises in the United Kingdom. All net assets are based in the United Kingdom. 2. Interest payable and similar charges -------- -------- 2006 2005 £ £ -------- -------- Interest on long term bank loans 667,795 596,615 Interest on bank overdraft 22,803 64,809 Bank charges, fees and instrument costs 565,161 640,468 -------- -------- 1,255,759 1,301,892 -------- -------- 3. Profit on ordinary activities before taxation This is stated after charging: Depreciation 1,010,509 902,655 Repairs and renewals-hotels 589,207 504,158 Repairs and renewals-other 11,628 17,960 Auditors' remuneration for audit services 33,800 28,000 Auditors' remuneration for tax compliance services 4,700 4,500 -------- ------- 4. Tax on profit on ordinary activities a) Analysis of charge in year Current Tax Corporation tax charge for year 98,583 118,272 Overprovision in respect of prior years (89,009) (8,172) -------- -------- Total current tax 9,574 110,100 -------- -------- Deferred Tax Origination and reversal of timing differences 210,668 216,010 Increase in discount (4,404) 29,695 Adjustment in respect of prior years 77,450 7,538 Adjustment in respect of prior years on discount - (91,249) -------- -------- Total deferred tax 283,714 161,994 -------- -------- Tax on profit on ordinary activities 293,288 272,094 -------- -------- b) Factors affecting tax charge for year The current tax is less than 30% of profit on ordinary activities, for the reasons set out in the following reconciliation: 2006 2005 £ £ Profit on ordinary activities before tax 1,181,991 1,181,107 --------- -------- Profit on ordinary activities multiplied by standard 354,597 354,332 rate of corporation tax in the UK of 30% (2005 - 30%) Effects of: 14,161 7,599 Disallowable expenditure Capital allowances for the period in excess of depreciation (240,668) (216,010) and short term timing differences Rate differences on current tax (29,507) (27,649) Adjustment in respect of prior year (89,009) (8,172) --------- -------- Corporation tax charge for the year 9,574 110,100 --------- -------- c) Factors that may affect future tax charges Based on current capital investment plans, the company expects to continue to be able to claim capital allowances in excess of depreciation in future years. The company has discounted deferred tax timing differences to take into account the true value of money at the time when those timing differences are expected to reverse. 5. Staff costs (excluding directors) Wages and salaries 4,601,397 3,669,058 Employer's social security costs 334,772 258,305 Pension costs 47,925 34,391 -------- -------- 4,984,094 3,961,754 Average number of people employed under Number Number contracts of service: Directors 5 5 Other employees 443 353 -------- -------- 448 358 -------- -------- 6. Directors' Remuneration 2006 2005 £ £ Aggregate emoluments: Fees 26,924 20,000 Salaries and benefits 170,030 157,687 -------- -------- 196,954 177,687 Company contributions to money 20,700 20,700 purchase pension schemes -------- -------- Number Number Number of directors who are members of a money purchase pension scheme 3 3 -------- -------- -------- -------- Further details of directors' remuneration are contained in the Directors' remuneration report on page 12. 7. Dividends 2006 2005 £ £ Paid during the year equity dividends on ordinary shares 545,421 509,059 Proposed after the year end (not recognised as a liability) 608,576 545,421 --------------------------- -------- -------- 8. Earnings per share Basic Calculated on the average number of shares in 12,625,196 12,120,457 issue during the year and on profit after taxation £888,703 £909,013 Diluted Calculated on average of number of shares 13,109,618 12,451,151 available during year and on the profit after taxation £888,703 £909,013 -------- -------- In calculating the diluted earnings per share, the weighted average number of shares is adjusted for the dilutive effect of the share options by 484,422 (2005 - 330,694), giving an adjusted number of shares of 13,109,618 (2005 - 12,451,151). 9. Tangible fixed assets Land and Plant and Furniture, Total buildings machinery furnishings and equipment £ £ £ £ Cost At beginning of year 27,513,409 3,507,799 5,156,392 36,177,600 Additions 2,936,330 108,691 828,162 3,873,183 -------- -------- -------- -------- At end of year 30,449,739 3,616,490 5,984,554 40,050,783 -------- -------- -------- -------- Depreciation At beginning of year 170,300 1,147,185 2,202,322 3,519,807 Provision for the year 73,012 316,932 620,565 1,010,509 -------- -------- -------- -------- At end of year 243,312 1,464,117 2,822,887 4,530,316 -------- -------- -------- -------- Net book value At beginning of year 27,343,109 2,360,614 2,954,070 32,657,793 At end of year 30,206,427 2,152,373 3,161,667 35,520,467 -------- -------- -------- -------- 2006 2005 £ £ Analysis of the net book value of land and buildings -------- -------- -------- -------- Freehold 23,599,925 18,741,551 Long leasehold 4,084,588 8,598,924 Short leasehold 2,521,914 2,634 -------- -------- -------- -------- 30,206,427 27,343,109 -------- -------- -------- -------- 10. Stocks Stocks comprise food and liquor. 11. Debtors 2006 2005 £ £ Trade debtors 506,986 665,724 Prepayments 458,588 379,519 -------- -------- 965,574 1,045,243 -------- -------- 12. Creditors due within one year -------- -------- 2006 2005 £ restated £ -------- -------- Bank loans and overdraft 1,242,581 1,494,417 Trade creditors 601,213 297,544 Tax and social security 512,004 464,791 Corporation tax 100,092 114,658 Other creditors 169,886 133,228 Accruals and deferred income 710,858 615,483 -------- -------- 3,336,634 3,120,121 -------- -------- Bank loans and overdraft includes an amount for bank overdraft of £500,311 (2005 - £752,147). The overdraft facility of £1,000,000 is due for review on 19 September 2006. 13. a) Creditors due after one year -------- -------- Bank loan (secured) 16,097,860 14,711,265 Less loan arrangement fees prepaid (116,032) (121,851) -------- -------- 15,981,828 14,589,414 -------- -------- The original bank loan is repayable by 15 semi-annual instalments plus a final payment on 11 April 2014. Interest is charged at 1.25% over LIBOR. The company has entered into a collar agreement on £7 million which caps the company interest cost at 6.99% plus margin of 1.25%. The minimum interest cost is 4.99% plus margin of 1.25%, up to 12 October 2009, except when LIBOR is below 4.99% between 24 June 2003 and 12 October 2009; in which case an additional 2% of interest is payable. The company has entered into a GBP roller coaster callable interest rate swap agreement which commenced on 11 April 2003 and ends on 11 April 2014 with an option for the Royal Bank of Scotland to terminate the agreement from 11 October 2009. Under the terms of this agreement the company fixes its interest payments up to 11 April 2014 on outstanding loan balances which are not covered by the collar agreement. The fixed interest swap requires the company to pay 5.83% on these amounts and therefore effectively fixes its borrowing costs on this portion of its debt portfolio at 7.08% (after inclusion of the 1.25% margin). A new loan of £2.5 million was taken to part fund the acquisition of the 3 new hotels. This is repayable over 10 years by semi-annual instalments. Interest is charged at 1.25% over LIBOR. The loans and overdraft are secured by debentures dated 7 December 1998, 8 September 1999, 21 June 2002 and 17 May 2005 over all of the company's freehold and long leasehold properties. Instalments due after more than one year are as follows: 2006 2005 £ £ Between 1 and 2 years 1,234,540 738,405 Between 2 and 5 years 3,704,620 2,953,620 Over 5 years 11,158,700 11,019,240 -------- -------- 16,097,860 14,711,265 Less loan arrangement fees (116,032) (121,851) -------- -------- 15,981,828 14,589,414 -------- -------- 13. b) Total borrowings -------- -------- 2006 2005 £ £ -------- -------- Between 1 and 2 years 1,234,540 738,405 Between 2 and 5 years 3,704,620 2,953,620 Over 5 years 11,158,700 11,019,240 -------- -------- 16,097,860 14,711,265 Less loan arrangement fees (116,032) (121,851) -------- -------- 15,981,828 14,589,414 On demand and less than one year 1,242,581 1,494,417 -------- -------- Total borrowings 17,224,409 16,083,831 ======== ======== 14. Financial instruments The company has defined financial assets and liabilities as those assets and liabilities of a financial nature, namely cash and borrowings. Short term debtors/creditors, taxation and prepayments and accruals have been excluded. Financial assets and liabilities are all in sterling and are linked to the London Interbank Offer Rate, before consideration of the effect of the collar arrangement as described in note 13. The interest rate swap agreement, which converts part of the floating rate borrowing to a fixed rate, became effective on 11 April 2003. Total gross financial assets at 12 February 2006 were £159,622 (2005 - £147,137) and total gross financial liabilities were £17,224,409 (2005 - £16,083,831). TREASURY POLICY The company finances its activities by a combination of long and short term bank facilities. It is, and has been throughout the period under review, the company's policy not to trade in financial instruments. LIQUIDITY RISK The only financial asset held by the company is that of cash at bank and in hand. The company has an overdraft and this balance is due on demand. The maturity profile of the company's overdraft and long term borrowings is included in note 13 b). The company produces cash flow forecasts in order to ensure that liabilities are met as they fall due. INTEREST RATE EXPOSURE The company is financed by a mixture of cash flow, short-term and long-term borrowings and overdraft facilities. Interest on long-term borrowings is determined with reference to LIBOR plus 1.25%. Long-term borrowings of £7,000,000 (2005 - £7,000,000) have been capped at an interest rate of 8.24%, with a floor rate of 6.24% as detailed in note 13. In addition (as set out in note 13), the company has a GBP roller coaster callable interest rate swap agreement. These arrangements have been put in place to address the interest rate risk of the business. FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES The directors believe that there is no material difference between the book value and the fair value of all financial assets and liabilities as at the balance sheet date, except as noted below. The directors have reviewed the fair value of the collar agreement described in note 13. The estimated value of this financial instrument is a liability of £530,514 (2005 - £100,740). The company entered into a GBP roller coaster callable interest rate swap which came into effect on 11 April 2003 (as set out in note 13). The estimated value of this financial instrument is a liability of £648,973 (2005 - £576,381). The fair value of all financial liabilities has been reached using the net present value of the expected cash flows from the transactions and based on the assumption of no unusual market conditions or forced liquidation. CURRENCY RISK The company has no material currency risk exposure due to the absence of any assets or liabilities denominated in foreign currencies. 15. Provision for liabilities and charges -------- -------- 2006 2005 £ £ -------- -------- Accelerated capital allowances 1,997,021 1,708,771 Short term timing differences 53,490 53,622 -------- -------- Undiscounted provision for deferred tax 2,050,511 1,762,393 Discount (420,019) (415,615) -------- -------- Discounted provision for deferred tax 1,630,492 1,346,778 Provision at start of year 1,346,778 1,184,784 Adjustment in respect of prior years 77,450 7,538 Adjustment in respect of prior years on discount - (91,249) Profit and loss account charge 206,264 245,705 -------- -------- Provision at end of year 1,630,492 1,346,778 -------- -------- As at the end of the year there is no unprovided deferred tax (2005 - nil) 16. Called up share capital -------- --------- Number Amount £ -------- --------- Authorised Ordinary shares of 10p each At beginning and end of year 25,000,000 2,500,000 -------- --------- Allotted and fully paid Ordinary shares of 10p each -------- --------- At beginning and end of year 12,120,457 1,212,046 Issued during year 691,666 69,167 -------- --------- At end of year 12,812,123 1,281,213 -------- --------- During the year 666,666 ordinary shares of 10p each were issued at 90p, to part fund the acquisition of the 3 new hotels. 25,000 share options were exercised at 87.5p. 17. Combined statement of the movement in shareholders' funds and statement of movement on reserves Called up share Share premium Profit and loss 2006 2005 capital account account Total Total £ £ £ £ £ --------- --------- --------- --------- --------- Opening 1,212,046 8,519,477 4,610,645 14,342,168 13,978,576 balance Restatement re - - 545,421 545,421 509,059 FRS 21 --------- --------- --------- --------- --------- Opening balance as restated 1,212,046 8,519,477 5,156,066 14,887,589 14,487,635 Profit attributed to - - 888,703 888,703 909,013 members of the company --------- --------- --------- --------- --------- Dividend - - (545,421) (545,421) (509,059) Issue of share 69,167 513,668 - 582,835 - capital --------- --------- --------- --------- --------- Closing 1,281,213 9,033,145 5,499,348 15,813,706 14,887,589 balance --------- --------- --------- --------- --------- 18. Capital commitments -------- -------- 2006 2005 £ £ -------- -------- Contracted for but not provided in the accounts 350,000 106,783 -------- -------- 19. Reconciliation of operating profit to net cash inflow from operating activities ------- -------- Operating profit 2,437,750 2,482,999 Depreciation 1,010,509 902,655 Increase in stocks (23,268) (12,210) Decrease/(increase) in debtors 82,169 (53,434) Increase/(decrease) in creditors 450,612 (5,857) ------- -------- Net cash inflow from operating activities 3,957,772 3,314,153 ------- -------- 20. Analysis of net debt -------- -------- --------- -------- At beginning of Cash Non At end of year year flow cash £ £ £ changes £ -------- -------- --------- -------- Cash at bank and in hand 147,137 12,485 - 159,622 Bank overdrafts (752,147) 251,836 - (500,311) -------- -------- --------- -------- (605,010) 264,321 - (340,689) Debt due within one year (742,270) - (742,270) Debt due after one year (14,589,414) (1,361,595) (30,819) (15,981,828) -------- -------- --------- -------- Total (15,936,694) (1,097,274) (30,819) (17,064,787) -------- -------- --------- -------- Financial year ended 12 February 2006 21. Leases -------- -------- 2006 2005 £ £ -------- -------- Operating lease rentals charged to profit and loss account: Land and buildings 525,198 206,180 Hire of plant and machinery 133,547 95,054 -------- -------- 658,745 301,234 -------- -------- Commitments under operating leases to pay rentals during the next year: Land and buildings Expiring after 5 years 515,981 206,180 -------- -------- Plant and machinery 133,547 95,054 Expiring in more than 2 years but less than 5 years -------- -------- 22. Related party transactions During the year premiums of £3,170 (2005 - £346,251) were paid to T L Dallas & Co Limited in which Robert Peel is a shareholder. There was an outstanding amount at the balance sheet date of £168,574 (2005 - nil). There were no other significant transactions between these parties during the year. 23. Controlling interests Robert Peel is the largest shareholder. Together with his brother Charles Peel, by reason of their interest they are deemed to control the company. 24. Directors' interests ------------- ------------- 12 February 13 February 2006 2005 10p ordinary 10p ordinary shares shares ------------- ------------- Shares Number Options Number Shares Number Options Number -------- -------- -------- -------- Robert Peel 4,496,900 1,000,000 4,262,451 1,000,000 Norbert Petersen 41,830 150,000 41,830 150,000 John Perkins 10,000 65,000 10,000 65,000 John Govett 350,000 - 300,000 - Keith Benham 168,801 - 160,000 - -------- -------- -------- -------- Total 4,833,082 1,215,000 4,774,281 1,215,000 -------- -------- -------- -------- Keith Benham's interest includes 42,200 (2005 - 40,000) shares owned by his wife. Details of the options granted to the directors can be found on page 12. No director was materially interested, either at the year end or during the year in any contract of significance to the company except for the related party transactions as disclosed in note 22. NOTES TO ACCOUNTS Financial year ended 12 February 2006 25. Share options During the year 25,000 share options were exercised (2005 - nil). As at 13 February 2005, the total number of share options was 1,455,000. During the year 223,000 options were granted, 25,000 were exercised and 38,000 lapsed, giving a total at 12 February 2006 of 1,615,000. Details of directors' share options can be found in the Directors Remuneration Report on page 12. Details of share options for non-directors at 12 February 2006 are as follows: ------------ ----------- ----------- ------------ ------------ Date of grant Number of Exercise price Earliest Expiry options per share exercise date (pence) date ------------ ----------- ----------- ------------ ------------ 19.12.2000 13,000 118.5 19.12.2003 18.12.2010 16.05.2002 60,000 87.5 16.05.2005 15.05.2012 ------------ ----------- ----------- ------------ ------------ 14.04.2004 108,000 88.5 14.04.2007 13.04.2014 31.05.2005 219,000 1.02 31.05.2008 30.05.2015 ------------ ----------- ----------- ------------ ------------ Total 400,000 ------------ ----------- ----------- ------------ ------------ The market price of the shares at 12 February 2006 was 119.5 pence and the range in the year was 102.5 pence to 119.5 pence. SHAREHOLDER INFORMATION Financial calendar Results announced Interim October 2006 Final April 2007 Dividends paid Final paid 16 May 2006 To shareholders on the register at 5 May 2006 Annual General Meeting At 12 noon on Friday 12 May 2006: Avon Gorge Hotel Sion Hill Clifton Bristol BS6 4LD Registrar Enquiries concerning holdings of the company's shares and notification of a holder's change of address should be addressed to: Computershare Services PLC PO Box No 82 The Pavilions Bridgewater Road Bristol BS99 7NH This information is provided by RNS The company news service from the London Stock Exchange

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