Final Results

RNS Number : 5036P

Park Plaza Hotels Limited

26 March 2009

 



26 March 2009

PARK PLAZA HOTELS LIMITED

('Park Plaza' or the 'Group')

Preliminary Results for the year ending 31 December 2008

Park Plaza Hotels Limited the owner, operator and franchisor of hotels in Europe, the Middle East and North Africa today reports results for the 12 months ended 31 December 2008. 

Summary

	Financial Statistics for the year ended 31 December1
	2008	Unaudited proforma 2007
Occupancy	79.8%	82.4%
Average Room Rate	€113.9	€118.8
RevPAR	€90.3	€ 97.1
Total Revenue	€93.4 million	€97.0 million
EBITDA2	€24.7 million	€28.4 million

1.

Park Plaza Hotels Limited was incorporated and registered in Guernsey on 14 June 2007. However, the merger of Euro Sea Group and acquisition of Park Plaza Group did not take place until 17 July 2007. Therefore, all 2007 figures in this statement up to and including the Income Statement Comparison to Proforma 2007 Income Statement are unaudited proforma figures and have been calculated as if the company had been incorporated and the merger and acquisition taken place on 31 December 2006.

2.

Earnings before interest, tax, depreciation, amortisation

	Solid financial performance against backdrop of significantly deteriorating trading conditions in the second half
	Reported revenue affected by the 14% reduction in average Sterling to Euro exchange rate, as UK hotels account for approximately 40% of Group revenue
	Hotels in the United Kingdom and The Netherlands outperformed their local markets again (Source: TRI Hospitality December 2008)
	-	United Kingdom: Underlying RevPAR for owned and co-owned hotels up by 2.5% vs. 1.2% for the London market as a whole
	-	The Netherlands: RevPAR for Park Plaza Victoria Amsterdam down only 1.4% vs. 8.5% decline for the Amsterdam market as a whole
	EBITDA primarily affected by Sterling devaluation, on-going difficult markets in Germany and Hungary and costs incurred in relation to transactions completed during the year
	Excellent progress made towards expanding the Group's portfolio in 2008:
	-	Increased shareholding in the Park Plaza Westminster Bridge London project to 100%; on schedule for 2010 opening
	-	Opened Park Plaza County Hall London in February
	-	Agreed joint venture with Reuben Brothers to develop UK's first art'otel in Hoxton, London
	-	Acquired shareholding and agreed management contract in a Croatian company that owns a large resort on the Istrian coast
	-	Extended franchise agreement in Morocco to include a new art'otel in Marrakech
	-	Signed management contract with Ferens Management Ltd for a chain of new hotels in Russia; expected to be developed from 2010 onwards

  Commenting on the results, Boris Ivesha, Chief Executive Officer of Park Plaza said: 

'The Group has delivered a solid financial performance in 2008 against a background of global economic and financial turmoil which affected performance in the second half. We also made excellent progress in the year towards our goal of having 8,000 rooms in the portfolio by 2010 and we now have up to 6,070 rooms in our development pipeline.

Since the beginning of 2009 trading conditions have continued to be difficult in our markets and we continue to anticipate that this year will be very challenging.  Nonetheless, I believe the quality of our portfolio, our expertise in managing through difficult markets and our strategic partnership with Carlson, through which we benefit from global marketing, reservation and distribution systems, provide strong levers for the year ahead.'

Enquiries:

Park Plaza Hotels
Boris Ivesha, Chief Executive Officer	Tel: [phone]
Chen Moravsky, Chief Financial Officer	Tel: [phone]
Hudson Sandler	Tel: [phone]
Jessica Rouleau / Wendy Baker / Fran Read

  Overview of 2008

The Group delivered a solid financial performance in 2008 against a backdrop of significantly deteriorating economic and trading conditions in the second half of the year. We are also pleased to report that our hotels in the United Kingdom and The Netherlands again outperformed their local markets in 2008. This performance was achieved thanks to the operational expertise of our management and marketing teams, through further leveraging the benefits of our strategic partnership with the Carlson Hotels network and keeping tight control over the Group's cost base.

The Group made excellent progress toward the achievement of its goal to have over 8,000 rooms in its portfolio by 2010.  Amongst the transactions completed during the year are the increase in the Group's shareholding in the Park Plaza Westminster Bridge London project to 100%, a joint venture agreement with the Reuben Brothers to develop the United Kingdom's first art'otel in London and the acquisition of a shareholding and management contract in a Croatian company that owns a large resort on the Istrian coast of Croatia.  In addition, we opened the Park Plaza County Hall London, extended our franchise agreement in Morocco and signed a management contract for a chain of new hotels in Russia, expected to be developed from 2010 onwards.

Financial Performance

Total revenue for the year was €93.4 million (2007: €97.0 million). Reported revenues were affected by the 14% reduction in the average Sterling to Euro exchange rate during the year, as our hotels in the United Kingdom account for approximately 40% of the Group's total hotel revenue.  

Reported Group RevPAR for the year was €90.3 (2007: €97.1) reflecting both the impact of Sterling devaluation and the increasingly challenging trading environment, particularly in the second half of the year. On a constant currency basis, Group RevPAR increased by 1.4%.

In the United Kingdom, RevPAR for our London hotels was €127.5 (2007: €144.6). Our hotels outperformed the London market (Source: TRI Report December 2008) and on a constant currency basis RevPAR increased by 2.5%. This was achieved through stable occupancy and a slight improvement in average room rates.  

In the Netherlands, RevPAR was €113.2 (2007: €112.5) with occupancy and average room rates remaining stable. This performance was achieved despite a decline in occupancy rates in the Dutch hotel market as a whole, particularly in Amsterdam where RevPAR for the industry declined by 8.5% during the year (Source: TRI Hospitality Report December 2008).  

As previously reported, oversupply of hotel rooms in Germany and Hungary has impacted performance, particularly in Dresden and Budapest. RevPAR for the Group's hotels in these countries was €48.8 (2007: €51.7), with a 7.8% decline in occupancy rates partially offset by a 2.4% increase in average room rates.  

Our Management and Holdings operation performed well with revenue up 26% to €9.3 million (2007: €7.4 million). This increase was due primarily to strong trading at Park Plaza County Hall London and contributions from our operations in Croatia. It was achieved despite the negative exchange rate impact on our UK management fees.  

Group EBITDA was €24.7 million (2007: €28.4 million), primarily as a result of the devaluation in Sterling during the year. EBITDA was also affected by the performance of our hotels in Germany and Hungary, the costs incurred in relation to the transactions that were completed in 2008 and the full year costs related to our status as a listed company. 

Reported profit before tax was €7.9 million (2007: €22.1 million), after negative goodwill adjustments of €6.5 million and impairment charges of €2.3 million.  Excluding these adjustments, the Group's 2008 underlying profit before tax was €3.7 million (2007: underlying loss before tax €0.1 million).  Additional detail on the negative goodwill and impairment adjustments can be found in Notes 3 and 5 in the financial statements.

Basic earnings per share for the period were €0.19 (2007: €0.78). Details on the calculation of earnings per share are provided in Note 6 in the financial statements.

As at 31 December 2008, net debt was €282.3 million (as at 30 June 2008: €267.9 million), and the Group had €54.6 million of liquid assets, of which cash and cash equivalents were €33 million (as at 30 June 2008: €60.1 million) and UK Treasury bond investments maturing on 31 March 2009 were €21.6 million (as at 30 June 2008: nil). The movement in the net debt position is primarily a result of increased current liabilities for the financing of construction of the Park Plaza Westminster Bridge London project. 818 of the 1,021 rooms have been sold and the €53.6 million of deposits received are held on the balance sheet as restricted deposits which are excluded from the €54.6 million liquid assets above. The financing for this project is secured against these sales. The remainder of the change in the cash position results from the devaluation in the Sterling. The Board reviews the Group's financial resources as a matter of course and is confident that the Group has adequate resources to meet its on-going requirements.

The Group's €42.3 million banking facility for three of its owned/co-owned Dutch properties matures in September.  The Group intends to refinance this facility and is currently in discussions with the lenders. A further update will be provided as appropriate.

Dividend 

In light of current market and trading conditions, the Board does not believe it is prudent to commence payment of a dividend.  

Review of Operations

The United Kingdom, The Netherlands and Germany are currently the principal markets in which Park Plaza operates.

The United Kingdom

Hotel Operations: Key Operating Statistics

	Euro (€)		GBP (£)
	Year ended  31 Dec 2008	Year ended  31 Dec 2007	Year ended  31 Dec 2008	Year ended  31 Dec 2007
		(Unaudited proforma)
Occupancy	85.0%	84.8%	85.0%	84.8%
Average Room Rate	€153.9	€173.6	£120.3	£119.2
RevPAR	€127.5	€144.6	£101.8	£99.3
Total Revenue	€33.2 million	€37.7 million	£26.5 million	£25.8 million
EBITDA	€10.3 million	€12.7 million	£8.3 million	£8.7 million

Although the London market remained strong during the first half, the effects of the global economic recession and financial crisis led to a very difficult trading environment in the second half, especially in the last quarter.  The Group's owned and co-owned hotels in London outperformed the market as a whole, growing underlying RevPAR by 2.5% to £101.8 (2007: £99.3). RevPAR for the London market as a whole was up 1.2% (Source: TRI Hospitality December 2008). On a reported basis, performance was affected by the 14% reduction in the average Sterling to Euro exchange rate during the year.  

The new management team appointed to our conferencing and banqueting business in 2007 delivered a 3.7% increase in underlying revenue for 2008. This improvement was achieved through a number of operational changes, including the introduction of hotel specific sales teams for meetings and events. This change led to a more tailored approach to marketing and reservations, which proved successful. The rate of year on year revenue growth slowed during the last quarter, as the economic environment has led to a later booking trend and lower average spend on food and beverage.  Several initiatives have been put in place to address this change in the booking pattern, such as a relaxation in cancellation policies and incentives for early booking.

The Netherlands

Hotel Operations: Key Operating Statistics

	Year ended  31 Dec 2008	Year ended  31 Dec 2007
Occupancy	89.5%	88.9%
Average Room Rate	€125.9	€126.8
RevPAR	€113.2	€112.5
Total Revenue	€22.9 million	€22.4 million
EBITDA	€8.4 million	€8.2 million

The global economic slowdown affected the Dutch hotel market more quickly than the UK market, with occupancy and average room rates coming under pressure from the end of the first half, especially in Amsterdam. Notwithstanding difficult trading conditions, the Group's hotels in The Netherlands continued to outperform their competitive sets. RevPAR increased slightly to €113.2 (2007: €112.5), as a result of an improvement in occupancy.  

Amsterdam was one of the worst affected European markets in 2008, with RevPAR declining by 8.5% (Source: TRI Hospitality December 2008). In this context, we were very pleased with the performance of the Park Plaza Victoria Amsterdam which maintained an exceptional 96% occupancy rate. Although this hotel did not achieve the same level of average room rates for the year, RevPAR declined by only 1.4%.  

The Park Plaza Utrecht also significantly outperformed its competitive set. RevPAR increased by 6.7%, as a result of an 11.4% increase in average room rates. The impact, during the second half, of room closures whilst 40 of the hotel's 120 rooms were completely refurbished was more than offset by higher room rates achieved after these rooms were re-opened. RevPAR for the competitive set in Utrecht dropped 6.1% during the year. (Source: STR Global 2009)

At the Park Plaza Mandarin Eindhoven, the refurbishment of rooms and the lobby area that took place during the first half contributed to a 2.3% increase in RevPAR for the year and improvements in food and beverage spend.  

  Germany and Hungary

Hotel Operations: Key Operating Statistics

	Year ended  31 Dec 2008	Year ended  31 Dec2007
Occupancy	70.9%	76.9%
Average Room Rate	€69.2	€67.6
RevPAR	€48.8	€51.7
Total Revenue	€27.9	€29.6
EBITDA	€(1.4) million	€(293,000)

As anticipated at the time of our interim results, the oversupply in Germany continued to affect all cities in which the Group operates during the second half.  RevPAR for Germany and Hungary was €48.8 (2007: €51.7) due to lower occupancy in our German hotels. 

Amidst this very difficult market, Park Plaza Prenzlauer Berg Berlin increased RevPAR by 11.8% to €38.0 (2007: €34.0). This was the result of a successful initiative to attract corporate business whilst reducing the number of leisure group clients which led to a 15.6% increase in average room rates.  

In Dresden oversupply is the main driver behind a 7.2% reduction in city wide occupancy rates (Source: Fairmas GmbH 2009).  For the Group's hotels, this situation has been compounded by the effect that economic slowdown is having on corporate clients, in particular.  Revenues from our Dresden hotels dropped by 16.5%, although the art'otel delivered better occupancy and average room rates than the local market (Source: Fairmas GmbH 2009).  

Although the Budapest market as a whole experienced a recovery during the first half of the year, the second half proved particularly difficult leading to a 5.6% drop in RevPAR for the year (Source: STR Global 2009).  Our Budapest art'otel outperformed the market due to its excellent location and product offering, with RevPAR declining 1.5%. 

Management and Holdings Operation

	Year ended  31 Dec 2008	Year ended  31 Dec 2007
Total Revenue	€9.3 million	€7.4 million
EBITDA	€7.4 million	€7.7 million

Total revenue from our managed and franchised hotels increased by 26% to €9.3 million (2007: €7.4 million).  This reflects contributions from the new Park Plaza County Hall London, which has significantly exceeded expectations since it opened in February 2008. It also includes contributions from management fees in Croatia and a small fee from our joint venture project in Russia.  

Notwithstanding the substantial increase in revenue from new projects during the year, EBITDA was €7.4 million (2007: €7.7 million).  As noted at the time of our interim results, this result is related to the costs associated with multiple transactions completed during the year in Russia, Croatia and the United Kingdom, the Sterling to Euro exchange rate that affects our managed hotels in the United Kingdom and the central costs incurred from our status as a listed company, which were not incurred for the full year in 2007.   Development Pipeline

During the year we continued to work towards our target of having over 8,000 rooms in our portfolio by 2010.  A number of transactions were completed during the first half and we continued to progress the development of these and other projects in the remainder of the year.  In 2009, we will continue refurbishment plans for the portfolio, although in light of current market conditions, we will be re-visiting opening schedules for our new hotels in order to optimise capital investment and returns. 

United Kingdom:  We are extremely pleased with progress made at the Park Plaza Westminster Bridge London project which has been 100% owned by the Group since February. This prestigious apart-hotel will be one of the largest hotel openings in the United Kingdom for 40 years and construction of the project is running on schedule and to budget for its 2010 opening. 

The General Manager, Marketing Director and sales teams were all put in place during the year. As a result of our already active pre-marketing of this property's rooms to potential guests, we have had an encouraging level of enquiries primarily relating to the state of the art conferencing and events facilities. 

Despite the current economic environment, we are also extremely encouraged that in addition to the 818 rooms already sold to investors, offers have been made for a number of additional rooms in the past month. This has been achieved without any active marketing of the rooms to potential investors or the requirement to discount prices.  

London's first art'otel will be located in Hoxton and is being developed through a 50:50 joint venture created by the Group and the Reuben Brothers in March.  370 rooms are expected to be added to our portfolio through this project and good progress was made on the design of plans during 2008. Feedback on these from the local authorities has been positive and we anticipate moving the planning process forward in 2009, aiming to have all permissions in place by the end of the year. 

Croatia:  In March, the Group acquired a 20% stake in Bora, which owns approximately 74% of Arenaturist d.d., a Croatian listed company which is the 100% owner of three private companies that together own eight hotels and five apartment complexes in and around Pula on the Istrian coast of Croatia. This transaction added an additional 2,800 rooms to Park Plaza's portfolio. The Group has also won the management contracts for these properties for an initial 20 year period. 

Since we took over management of Arenaturist's properties in the summer, we have put in place a number of initiatives to improve the operations and appeal of this property in preparation for the 2009 Summer season. In partnership with our co-investors, Goldman Sachs, we have appointed a new Board and senior management, including a Director who, most recently, was Vice President of Marketing & Sales at Isrotel, one of Israel's leading hotel and resort companies. A new Director of Sales & Marketing has also joined Arenaturist from Sol Melia, where she was responsible for the repositioning of their resort in Umag, Istria. In addition we have significantly upgraded the property management and internal financial systems, as well as investing in restaurant refurbishments and staff training and development.  

Work has also been progressed on plans and designs for the redevelopment of these properties.  We are currently in dialogue with the local authorities and are working towards obtaining planning permission by the end of 2009. 

Russia:  In April, the Group signed an agreement with Ferens Management Ltd to operate a chain of new hotels in Russia under 20 year management contracts. These hotels are expected to be established from 2010 onwards under the Park Plaza Hotels & Resorts brand. Market conditions in Russia have deteriorated significantly since this agreement was signed. Therefore whilst we have continued to actively review sites, project time-lines have been revised to account for the changed economic backdrop.

   Current and committed projects: 

Project	Location	Operating structure	No of rooms	Expected to open
art'otel cologne	Cologne, Germany	Operating lease	220	2009
art'otel marrakech	Marrakech, Morocco	Franchise agreement	70	2009
Park Plaza Marrakech	Marrakech, Morocco	Franchise agreement	114	2009
art'otel london hoxton	London, UK	Joint venture / Management contract	370	Planning application to be submitted 2009
Redevelopment of eight hotels and five apartments	Croatia	Management contract and equity investment	2,800*	2009 onwards
Park Plaza Westminster Bridge London	London,  UK	Owned	1,021**	2010
art'otel amsterdam	Amsterdam, The Netherlands	Co-owned	100	2010
Park Plaza Nuremberg	Nuremberg, Germany	Owned	175	2010
Chain of new hotels	Russia	Management contract	3,500-4,000	2010 onwards
Number of rooms in development pipeline			Up to 6,070
Current number of rooms			7,102
Total number of rooms expected by  31 December 2012			Up to 13,172

*	Park Plaza currently manages and operates 2,800 rooms in Croatia which have been included in the current number of rooms in the Group's portfolio. They have not been included in the calculation of rooms in the development pipeline
**	of which 818 rooms have already been sold to investors

  Current Trading and Outlook

Since the beginning of 2009 trading conditions have continued to be difficult in our markets.  As previously indicated, the global economic downturn has reduced visibility and continues to put pressure on occupancy and average room rates. As a result, we continue to anticipate that 2009 will be a very challenging year for the industry.

Clearly, the Group is not immune from these market conditions. Nonetheless, since the beginning of 2009, RevPAR at our hotels in the United Kingdom and the Netherlands has continued to outperform that of the local markets.  

The London hotel market has continued to be challenging with revenue for the first two months of the year down 12.5% (Source: TRI Hospitality Report February 2009). For the first 12 weeks of the year the Group's hotels in the United Kingdom have achieved revenue that is broadly flat. EBITDA during this period has improved slightly compared to the first 12 weeks of last year, having benefited from the cost control initiatives we have put in place. 

The Dutch market has remained extremely weak since the beginning of the year. Occupancy rates in Amsterdam for January were 50.4% (Source: STR Global January 2009) and some market participants estimate that occupancy rates remain at this level.  The Group's hotels have continued to outperform in terms of occupancy relative to the market and are growing market share. Nonetheless revenue and EBITDA for the first 12 weeks of the year are down in the order of 20-25% on the comparative period last year. 

In Germany and Hungary revenue for the Group's hotels is flat compared to the first 12 weeks of last year.  Revenues from our management and holdings operation are marginally lower for the first 12 weeks of the year.

We continue to be focused on stringent management of our cost base and in adapting our marketing and selling strategies to mitigate the slowdown in the markets. We believe our performance since the beginning of the year is testament to the quality of our portfolio, our expertise in managing through difficult markets and the importance of our strategic relationship with the Carlson network. Our membership in this network provides the Group with access to Carlson's large-scale and effective marketing programmes, reservation and distribution systems, a significant advantage not enjoyed by smaller hotel companies.

We are also well advanced in achieving our 2010 room target and are actively working towards the completion of refurbishments and important projects in our development pipeline, including the Park Plaza Westminster Bridge London project, the art'otel london hoxton and our Croatian project. These projects will all contribute to growing the longer term prospects of the Group. Although 2009 will be a difficult year, we believe the Group is well positioned to efficiently manage its operations and development projects and achieve further progress during the year ahead.

  Owned / co-owned Hotels - Selected Unaudited Operational and Financial Statistics 

The following table provides certain summary operating statistics for Park Plaza's owned and co-owned, operated and managed hotels for the periods indicated. These data have been extracted from Park Plaza's unaudited management accounts and may therefore not be comparable to Park Plaza's results in the consolidated financial statements over the periods shown or to be expected for any future period.

	No. of rooms	Occupancy		ADR		RevPAR
		Jan-Dec	Jan - Dec	Jan-Dec	Jan - Dec	Jan- Dec	Jan -   Dec
		2008	2007	2008	2007	2008	2007
				€	€	€	€
Park Plaza Victoria Amsterdam	306	96%	96%	145	149	140	142
Park Plaza Vondelpark, Amsterdam	138	85%	81%	102	105	86	82
Park Plaza Utrecht Utrecht	120	80%	83%	117	105	95	89
Park Plaza Mandarin Eindhoven	102	87%	85%	102	100	88	86
Park Plaza Riverbank London	394	84%	82%	134	152	110	122
Plaza on the River London	66	78%	79%	248	311	185	241
Park Plaza Victoria London	299	87%	88%	157	169	134	148
Park Plaza Sherlock Holmes London	119	85%	89%	167	182	139	159

  Owned / co-owned Hotels - Selected Unaudited Operational and Financial Statistics 

The following table provides certain summary operating statistics for Park Plaza's owned and co-owned, operated and managed hotels for the periods indicated. These data have been extracted from Park Plaza's unaudited management accounts and may therefore not be comparable to Park Plaza's results in the consolidated financial statements over the periods shown or to be expected for any future period.

	Total Revenue		GOP		EBITDA
	Jan-Dec	Jan - Dec	Jan- Dec	Jan - Dec	Jan- Dec	Jan - Dec
	2008	2007	2008	2007	2008	2007
	€ '000	€ '000	€ '000	€ '000	€ '000	€ '000
Park Plaza Victoria Amsterdam	10,746	10,920	4,630	4,960	3,817	4,106
Park Plaza Vondelpark, Amsterdam	4,661	4,033	2,093	1,630	1,687	1,102
Park Plaza Utrecht	3,280	3,254	1,525	1,538	1,281	1,318
Park Plaza Mandarin Eindhoven	4,258	4,173	1,901	2,000	1,582	1,689
Park Plaza Riverbank London	12,878	16,982	6,293	7,055	3,754	4,892
Plaza on the River London	4,581	3,296	1,707	2,321	1,491	2,027
Park Plaza Victoria London	11,338	12,278	4,630	5,720	4,265	4,483
Park Plaza Sherlock Holmes London	4,378	5,117	1,900	2,324	823	1,316

  INCOME STATEMENT 2008 COMPARISON TO PROFORMA PROFIT AND LOSS STATEMENT 2007

				Year ended  31 December
				2008		2007*
				€ '000
Revenues				93,385		97,058
Operating expenses				(57,528)		(57,677)
EBITDAR				35,857		39,381
Rental expenses				(11,200)		(11,007)
EBITDA				24,657		28,374
Depreciation and amortisation				(9,050)		(9,353)
EBIT				15,607		19,021
Financial expenses				(17,537)		(22,715)
Financial income				6,684		3,690
Share in loss of associate				(1,037)		(40)
Other income				6,507		22,184
Other expenses				(2,284)		-
Profit before tax				7,940		22,140
Income tax expense (benefit)				27		(923)
Profit for the year				7,913		23,063

* unaudited proforma results  CONSOLIDATED INCOME STATEMENTS 

				Year ended  31 December
				2008				2007
				€ '000 (except earnings per share)
Revenues				93,385			75,039
Operating expenses				(57,528)			(44,503)
EBITDAR				35,857			30,536
Rental expenses				(11,200)			(6,102)
EBITDA				24,657			24,434
Depreciation and amortisation				(9,050)			(7,252)
EBIT				15,607			17,182
Financial expenses				(17,537)			(20,831)
Financial income				6,684			3,782
Share in loss of associate				(1,037)			(40)
Other income				6,507			22,184
Other expenses				(2,284)			-
Profit before tax				7,940			22,277
Income tax expense (benefit)				27			(21)
Profit for the year				7,913			22,298
Basic and diluted earnings per share (in Euro)				0.19			0.78

The accompanying notes are an integral part of these consolidated financial statements.

  CONSOLIDATED BALANCE SHEETS 

				31 December
				2008		2007
				€ '000
ASSETS
NON-CURRENT ASSETS:
Intangible assets				53,297		56,993
Property, plant and equipment				157,472		170,848
Prepaid leasehold payments				15,834		20,621
Investment in associate				22,680		9,109
Other non-current financial assets				1,288		*) 4,549
				250,571		262,120
CURRENT ASSETS:
Inventories under construction				226,892		-
Restricted deposits				52,780		646
Inventories				520		578
Other current financial assets				23,852		-
Trade receivables				11,520		10,634
Other receivables and prepayments				4,957		*) 3,319
Cash and cash equivalents				33,065		119,376
				353,586		134,553
Total assets				604,157		396,673

*)    Reclassified - due to misclassification of deposits in the amount of €842,000 to long-term.

The accompanying notes are an integral part of these consolidated financial statements.

  CONSOLIDATED BALANCE SHEETS 

				31 December
				2008		2007
				€ '000
EQUITY AND LIABILITIES
EQUITY:
Issued capital				-		-
Share premium				199,031		195,894
Other reserve				(220)		-
Foreign currency translation reserve				(32,169)		(11,009)
Hedging reserve				(6,381)		1,759
Accumulated deficit				(13,464)		(21,377)
Total equity				146,797		165,267
NON-CURRENT LIABILITIES:
Bank borrowings				124,065		177,912
Other liabilities				33,382		2,607
Deferred income taxes				9,970		2,061
				167,417		182,580
CURRENT LIABILITIES:
Trade payables				9,594		4,502
Deposits received from unit holders				53,580
Other payables and accruals				13,050		15,668
Bank borrowings				213,719		28,656
				289,943		48,826
Total liabilities				457,360		231,406
Total equity and liabilities				604,157		396,673

Adopted on: 25 March 2009

Chen Moravsky, Chief Financial Officer

Boris Ivesha, President and Chief Executive Officer

The accompanying notes are an integral part of these consolidated financial statements.

  CONSOLIDATED STATEMENTS OF CASH FLOWS

		Year ended 31 December
		2008		2007
		€ '000
Cash flows from operating activities:
Profit for the year		7,913		22,298
Adjustment to reconcile profit to net cash provided by (used in) operating activities (a)		(83,267)		(17,466)
Net cash provided by (used in) operating activities		(75,354)		4,832
Cash flows from investing activities:
Purchase of property, plant and equipment		(5,818)		(8,637)
Net change in cash upon acquisition of the Park Plaza Group (b)		-		6,735
Net change in cash upon disposal of joint venture (e)		-		14,930
Net change in cash upon acquisition of Marlbray (c)		(13,756)		-
Net change in cash upon acquisition of Aspirations (d)		(14,589)		-
Loans to an associate		(22,094)		-
Investment in associate		(745)		-
Net change in restricted deposits		(2,268)		-
Net change in short term deposits		-		3,459
Investment in UK bonds		(23,681)		-
Investment in marketable shares		(3,013)		-
Decrease (increase) in restricted cash		(212)		375
Net cash provided by (used in) investing activities		(86,176)		16,862
Cash flows from financing activities:
Proceeds from issuance of new shares		-		116,490
Dividend distribution		-		(15,000)
Proceeds from long-term loans		20,017		720
Repayment of long-term loans		(21,860)		(3,068)
Increase in short-term credit, net		89,004		67
Repayment of loans from related parties		-		687
Net cash provided by financing activities		87,161		99,896
Increase (decrease) in cash and cash equivalents		(74,369)		121,590
Net foreign exchange differences of cash and cash equivalents		(11,942)		(8,426)
Cash and cash equivalents at beginning of year		119,376		6,212
Cash and cash equivalents at end of year		33,065		119,376

The accompanying notes are an integral part of these consolidated financial statements.  CONSOLIDATED STATEMENTS OF CASH FLOWS

			Year ended 31 December
			2008		2007
			€ '000
(a)	Adjustment to reconcile profit to net cash provided by (used in) operating activities:
	Gain on sale of investments		-		(9,148)
	Share in loss of associate		1,037		40
	Negative goodwill on acquisition of Park Plaza Group		-		(13,036)
	Negative goodwill on acquisition of Marlbray		(6,500)		-
	Interest on loan to an associate		(665)		-
	Deferred income taxes		(362)		682
	Depreciation and amortisation		10,206		9,360
	Share-based payments		16		68
	Impairment of property plant and equipment		1,257		-
	Impairment of art'otel rights		1,027		-
	Interest on deposit (net)		2,414		-
	Changes in operating assets and liabilities:
	Increase in inventories under construction		(87,274)		-
	Decrease (increase) in inventories		20		(65)
	Decrease (increase) in trade and other receivables		(2,037)		199
	Decrease in trade and other payables		(2,406)		(5,566)
			(83,267)		(17,466)
(b)	Net change in cash upon acquisition of the Park Plaza Group:
	Current assets (excluding cash and cash equivalents)		-		(12,922)
	Current liabilities		-		29,889
	Non-current assets		-		(112,734)
	Non-current liabilities		-		28,531
	Fair value of the shares issued as consideration for acquisition		-		60,935
	Negative goodwill		-		13,036
			-		6,735

The accompanying notes are an integral part of these consolidated financial statements.

  CONSOLIDATED STATEMENTS OF CASH FLOWS

			Year ended 31 December
			2008		2007
			€ '000
(c)	Net change in cash upon acquisition of Marlbray:
	Current assets (excluding cash and cash equivalents)		(229,394)		-
	Current liabilities		164,904		-
	Non-current assets		(603)		-
	Non-current liabilities		41,687		-
	Revaluation of existing interest upon acquisition		29
	Fair value of the shares issued as consideration for acquisition		3,121		-
	Negative goodwill		6,500		-
	Net change in cash		(13,756)		-
(d)	Net change in cash upon acquisition of Aspirations:
	Current assets (excluding cash and cash equivalents)		88		-
	Current liabilities		(88)		-
	Non-current assets		(14,589)		-
	Net change in cash		(14,589)		-
(e)	Net change in cash upon disposal of a joint venture:
	Current assets (excluding cash and cash equivalents)		-		307
	Current liabilities		-		(104)
	Non-current assets		-		5,579
	Non-current liabilities		-		-
	Gain on sale		-		9,148
			-		14,930
(f)	Supplemental disclosure of cash flows:
	Cash paid during the year:
	Income taxes		201		294
	Interest		11,964		13,009
	Cash received during the year:
	Interest		4,839		2,996
(g)	Significant non-cash transactions:
	Shares issued to acquire the Park Plaza Group		-		60,935
	Shares issued to acquire intangibles		-		4,000
	Shares issued to acquire Marlbray		3,121		-

The accompanying notes are an integral part of these consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1:-  GENERAL

The Company was incorporated and registered in Guernsey on June 14, 2007. 

The Company through its subsidiaries owns, operates and franchises, hotels in Europe, the Middle East and North Africa predominantly under the Park Plaza Hotels & Resorts and art'otel brands.

On July 14, 2007, the Company entered into an agreement to acquire the Euro Sea Group. For periods prior to the legal formation of the Company, the assets, liabilities, revenues and expenses of Euro Sea Group were consolidated in preparing the financial statements. Also on July 14, 2007, as part of the IPO, the Euro Sea Group acquired 100% of the voting shares of Park Plaza Hotels Europe Holding B.V., its subsidiaries and other investments ('Park Plaza Group'). As of this date the assets, liabilities, revenues and expenses of the Park Plaza Group were included in the consolidated financial statements.

Global liquidity crisis

The ongoing global liquidity crisis which commenced in the middle of 2007 has resulted in, among other things, a lower level of capital market funding, lower liquidity levels across the banking sector, and, at times, higher interbank lending rates and very high volatility in stock markets. The uncertainties in the global financial markets have also led to bank failures and bank rescues in the United States of America, Western Europe, Russia and elsewhere. Indeed the full extent of the impact of the ongoing financial crisis is proving to be impossible to anticipate or completely guard against.

In response to this global economic crisis, the Board of Directors has undertaken a recent and thorough review of the Group's forecasts and associated risks. These forecasts extend for a period of one year from 31 December 2008. As part of the review, the Board verified the Group's compliance with the loan covenants as set forth in its debt facilities and considered the liquidity risk arising from the maturities of its loans.

The Group is financed using debt instruments with a range of maturities. The Group's borrowings (net of interest hedges) are repayable as follows:

Loan	EUR Million	Maturity
Dutch Portfolio	42.3	September 2009
Development art'otel amsterdam	7.0	November 2009
Development Park Plaza Westminster Bridge London	163.0 *	Completion expected 2010
London Portfolio	104.8	February 2011 **
Park Plaza Vondelpark, Amsterdam	21.0	September 2013

*	Part of a £221 million (€ 232 million) facility agreement to fund the development of Park Plaza Westminster Bridge London (1,021 room apart-hotel). The Loan Facility Agreement is repayable in full on the earlier of: (a) 30 business days of the date of Practical Completion, which is expected in 2010; and (b) the Final Maturity Date, being 19 April 2011
**	The Company has an option, providing certain covenants are met, to extend the loan term by 24 months (i.e. February 2013)

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1:-  GENERAL (cont.)

Two of the Group's loans funding the Dutch portfolio are maturing during 2009. The credit markets and funding environment were unfavourable in 2008 and are currently continuing to be so in 2009. However, the Board believes the Group will be able to secure refinancing for this well established, performing portfolio, which is currently leveraged at approximately 50% of its most recent performance valuation.

In 2009, as in prior years, the Group ensures that there is sufficient capital in order to meet short-term business requirements, after taking into account cash flows from operations and the Group's holdings of liquid assets. According to budgets, all of the hotels are expected to have enough working capital to continue their operations and generate enough operating profit to serve their financial obligations. The Group has adequate resources to continue its operations for the foreseeable future, even in the remote scenario in which the Group will have to re-finance its Dutch portfolio loans due in 2009 from its own capital.

Management believes it is taking all the necessary measures to support the sustainability and growth of the Company's business in the current economic circumstances. Given these circumstances, the Board has held detailed discussions around the concept of going concern. Following these discussions and based on the review disclosed above, the Board has come to the conclusion that there are no uncertainties regarding the Group's ability to continue as a going concern.

NOTE 2:-  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a	Basis of preparation:
	The consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as at December 31, 2007.
b	The accounting policies adopted in the preparation of the annual consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended December 31, 2007 except for the following:

Inventories under construction

Inventories under construction are measured at the lower of cost or net realisable value. Cost of inventories includes direct identifiable construction costs, indirect costs and capitalised borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

Acquisitions of joint ventures that are not business combinations

On the day of acquisition of joint venture and operations, the Company assesses whether business is acquired in accordance with IFRS 3. A business generally consists of inputs, processes applied to those inputs, and resulting outputs that are, or will be, used to generate revenues. If goodwill is present, the transferred set of activities and assets shall be presumed to be a business. When no business is acquired, according to IFRS 3, the consideration is allocated between the identifiable assets and liabilities acquired on the basis of relative fair values, without allocating to goodwill or deferred taxes.

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3:-  BUSINESS COMBINATION

ACQUISITION OF MARLBRAY LTD

In February 2008, Euro Sea Hotels N.V., a wholly owned subsidiary of the Company, acquired 67% of the shares of Marlbray Ltd. ('Marlbray'), increasing the Group's ownership interest in Marlbray to 100%. Marlbray is the owner of the Park Plaza Westminster Bridge (London) project, anticipated opening is in the first half of 2010 (see Note 11 in the 2008 annual financial statements).

The fair value of the identifiable assets and liabilities of Marlbray as at the date of acquisition (based on an independent appraisal) and the corresponding carrying amounts immediately before the acquisition are:

		Fair value recognised on  acquisition		Previous  carrying  amount
		€'000
Inventories under construction		184,226		140,369
Restricted deposits		52,854		52,843
Other current assets and receivables		1,660		1,660
Cash and cash equivalents		456		456
		239,196		195,328
Bank borrowings		102,577		102,577
Shareholders loan		-		620
Other financial liabilities		84,701		78,567
Deferred income taxes		10,563		-
Trade payables		1,563		1,563
Other payables and accruals		7,192		7,192
Liability to Irish Nationwide Building Society		-		5,339
		206,596		195,858
		32,600		(530)
Carrying amount of investment in Marlbray as an associate		(8,738)
Revaluation of existing interest upon acquisition		(29)
Negative goodwill on acquisition		(6,500)
Total consideration		17,333

The total consideration for the 67% interest acquired, in the amount of €7.33 million, consists of £10.6 million (€14.2 million) in cash and the issue of 735,000 Ordinary shares of the Company (490,000 of which were issued to the sellers of Marlbray). The market price of the shares on the date of acquisition was £3.16 (€4.24). As part of the consideration, the Company funded the repayment of approximately £472,000 (€631,000) of loans made to Marlbray by the selling shareholders and a fee payable by Marlbray to Irish Nationwide Building Society (which provided finance for the early stages of the project) which was satisfied by approximately £3.2 million (€4.3 million) in cash and the issue of 245,000 Ordinary shares.

From the date of the acquisition the contribution of Marlbray to the net profit of the Group is not material. If the combination had taken place at the beginning of the year, the net profit of the Group would be €346,000 lower. Marlbray does not generate revenue as the Park Plaza Westminster Bridge London apart-hotel is still under construction.

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4:-  OTHER ACQUISITIONS

a)	ACQUISITION OF WH/DMREF BORA BV
	In April 2008, Euro Sea Hotels N.V., a wholly owned subsidiary of the Company, acquired 20% of the shares of WM/DMREF Bora B.V. ('Bora') from a group of real estate investment funds. Bora currently owns approximately 74% of Arenaturist d.d., a public company listed on the Zagreb (Croatia) Stock Exchange, and 100% of three related private companies. These companies together own eight hotels and five apartment complexes in and around Pula on the Istrian coast of Croatia. As part of the transaction, the Company is also acquiring 20% of the debt currently provided to Bora by its shareholders.
	The total consideration of the acquisition, including the debt being acquired, is € 22.4 million, which was funded by the Company from its existing cash resources.
	The investment in Bora is accounted for under the equity method in accordance with IAS 28.

b)	ACQUISITION OF ASPIRATIONS LTD
	In March 2008, Apex Holdings (UK) Limited ('Apex'), a wholly owned subsidiary of the Company, acquired 50% of the issued share capital of Aspirations Limited ('Aspirations'), the owner of a site (Hoxton, London) on which the Company plans to develop a new apart-hotel under the 'art'otel' brand.
	The consideration for the 50% interest in Aspirations was £ 3.0 million (€ 3.9 million) in cash. In addition, Apex advanced a loan of approximately £ 8.0 million (€ 10.4 million) to Aspirations. Following completion, Aspirations will be indebted to each of its shareholders for the same amount and on the same terms. The consideration for the shares and the loan from Apex to Aspirations was funded by the Company from its existing cash resources. Park Plaza Hotels Europe B.V. (a subsidiary of the Company) has entered into an agreement with Aspirations to operate and manage the hotel for an initial term of 20 years from the opening of the hotel onwards.  The Group reports its interest in Aspiration using proportionate consolidation.

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5:-  IMPAIRMENT TESTING OF INTANGIBLE AND TANGIBLE ASSETS

Intangible assets

The recoverable amounts of the intangible assets have been determined by an independent valuer based on value in use calculations using cash flow projections for the relevant cash generating units from financial budgets approved by senior management covering a five-year period. The pre-tax discount rate applied to cash flow projections is 9.5% and cash flows beyond the 5-year period are extrapolated using a 2.5% growth rate.

In 2008, the Group recorded an impairment loss in the amount of €1.03 million which is included in other expenses.

Property, plant and equipment

The recoverable amount of property, plant and equipment has been determined based on internal value in use calculations using discounted cash flow projections for the relevant cash generating units. These projections are based on financial budgets approved by senior management covering a five-year period. The pre-tax discount rate applied to cash flow projections is 9.7% and cash flows beyond the 5-year period are extrapolated using growth rate of 2.0-2.5%. In 2008, the Group recorded an impairment loss in the amount of €1.26 million which is included in other expenses.

NOTE 6:-    EARNINGS PER SHARE

The following reflects the income and share data used in the basic earnings per share computations:

		Year ended 31 December
		2008		2007
		€ '000
Profit (loss)		7,913		22,298
Weighted average number of Ordinary shares outstanding		41,558		28,611

Potentially dilutive instruments (share options) have not been included in the calculation of diluted earnings per share because they are anti-dilutive for all periods presented

  NOTE 7:-  SEGMENTS

The segment reporting format is determined to be geographical segments as the Group's risks and rates of return are affected predominantly by the location of the Group's hotels.

		Year ended 31 December 2008
		The Netherlands		Germany		U.K.		Hungary		Adjustments and eliminations		Consolidated
		€000
Total revenue		22,981		23,515		33,272		5,101		8,516		93,385
Segment results		4,316		(1,979)		(4,719)		(406)		10,278		7,940

		Year ended 31 December 2007
		The Netherlands		Germany		U.K.		Hungary		Adjustments and eliminations		Consolidated
		€000
Total revenue		20,903		12,857		34,867		2,723		3,689		75,039
Segment results		7,608		250		(4,463)		146		18,736		22,277

ASSETS

The increase of the assets of the Company is mainly due to the increase of assets in the UK resulting from the acquisitions as disclosed in Note 3 and 4. 

 

END

 

 

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