DALATA HOTEL GROUP PLC Dalata Hotel Group PLC: 2020 Preliminary Financial Results
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Dalata Hotel Group PLC (DAL,DHG)
Unbowed and Unbroken ISE: DHG LSE: DAL
Dublin and London | 2 March 2021: 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 2020.
OUR PEOPLE ARE UNBOWED AND OUR BALANCE SHEET IS UNBROKEN
INCREASED LIQUIDITY DUE TO SPEEDY AND PROACTIVE RESPONSE
ROBUST BALANCE SHEET PROVIDES SECURITY AND OPPORTUNITY
READY FOR THE RECOVERY
STRATEGIC AND OPERATING HIGHLIGHTS
OUTLOOK The hospitality industry in Ireland and the UK continues to be impacted by restrictions to curb the spread of Covid-19. Since the start of 2021, all of our hotels remain operational providing accommodation to front line workers, essential workers and those requiring quarantine but are closed to the general public. The easing of restrictions and reopening of the hospitality industry will be determined by the Irish and UK governments. Occupancy as expected has remained muted in January 12% and February 15% with an Adjusted EBITDA loss expected to be approximately €2.5 million for the first two months. The outlook for the near term remains uncertain at present and it is not yet known when international travel will return to more normal levels. However, we remain ready and primed to get back to full operating levels once restrictions are lifted. The rollout of vaccines across Europe and globally is very encouraging, with the speed of rollout increasing as we move towards Q2. As lockdowns and travel restrictions are gradually eased, the Group anticipates domestic demand will return in the first instance, as seen in July and August 2020 when restrictions were relaxed in Ireland and the UK, followed by international leisure and business travel. Our teams look forward to welcoming back those customers who have not been able to visit us over the last year. The Group will continue the measures implemented to combat the impact of Covid-19 on the business. In addition, we are assessing distressed opportunities as they arise. Our reputation as a strong reliable covenant has been enhanced through the course of the pandemic and we are confident that this will assist us greatly in securing further opportunities. Our cash and undrawn debt facilities of €290 million at the end of February 2021 leave us in a great position to withstand any further impact of Covid-19 restrictions in 2021 and participate in the recovery of global tourism. The hospitality sector has historically shown tremendous resilience to recover from other demand shocks and crises. As a result, the Board remain convinced that Dalata is well placed to benefit with its strong balance sheet, young, well invested portfolio and experienced teams at hotels and central office. Pat McCann, Dalata Hotel Group CEO, commented: "2020 has been an extraordinary year, unlike any other I have encountered during my 50-year career in the hospitality industry. The impact of the Covid-19 pandemic has been extremely challenging for our industry, our people and our communities. When I reflect on our performance in 2020, I am extremely proud of what we accomplished together. We have ended a very difficult year in a strong financial position with our core teams intact, morale running high and we are ready for the challenges and opportunities ahead. Quite simply, we are unbowed and unbroken. We achieved this by holding firm to the values and beliefs that define us including being fair, transparent, consistent and balanced. Our financial position remains robust. We have always managed the business with a strong understanding and awareness of the inevitable ups and downs facing our industry, including shocks, and yet position it for ongoing growth and opportunity. We therefore entered the crisis in a very strong financial position. Our strategy of maintaining an asset backed balance sheet and comfortable gearing ensured Dalata was well placed to confront the challenges which followed. Through our proactive response to the pandemic and the tremendous efforts and collaboration by our people and our key stakeholders, we protected our financial position. I would like to take this opportunity to thank all of our people and our stakeholders for their invaluable hard work and support over the last 12 months. We have very strong relationships with our banking partners. The amended debt facility agreed in July 2020 with a temporary revised suite of covenants will provide flexibility and support as business recovers. Our institutional landlords also continue to actively support Dalata and remain committed to our long-term partnerships. Our shareholders strongly supported us through the equity placing which raised net proceeds of €92 million in September. These strong relationships with our stakeholders will be fundamental as we move through the recovery and continue to create long term value into the future. In addition to our strong financial position, I am very pleased that we have retained our key people. We made a decision early in the pandemic to keep the core management teams in place at our hotels and central office. This approach, together with our decentralised operating model, was absolutely critical to our success during 2020 as it enabled us to react quickly as the level of restrictions in Ireland and the UK changed. It will also be beneficial that our regular guests are greeted by familiar faces when they return. When I talk to our teams at the hotels, I am heartened by their optimism in spite of what has been a very challenging year for them. Like myself, our people enjoy the buzz of a busy hotel and are eagerly looking forward to welcoming guests back to our hotels in the year ahead. We maintained engagement with our people including those we could not bring into work through our employee app and offering learning and development courses through our newly branded Dalata Academy. Over 92,000 courses were completed during 2020. I am proud to see the strong motivation of our people to continue upskilling and developing. They are the heart and soul of our business and I am delighted that they too are unbowed and looking to the future. We are thankful for the support provided by the Irish and UK governments over the last 12 months. Given the scale of our business in Ireland, the Irish support packages are particularly important. The Employment Wage Subsidy Scheme and the commercial rates waiver in Ireland remain in place until 30 June 2021. The on-going support is critical as the industry navigates through this crisis and positions for recovery. The "Experience Economy" which includes the hospitality sector, employs over 330,0002 people in Ireland and is particularly important to the regional economy. I am now calling on the Irish government to continue their commitment to support this vital part of our economy as it starts to recover. One of the key supports after the financial crisis was the reduction in the VAT rate. I am asking the Irish government to commit to a minimum of five years to a VAT rate of 9%. The big beneficiary of this will be to the exchequer itself and it will support getting people back to work. ESG (Environmental, Social and Governance) is a key focus for the Board and Management and we continue to advance our sustainability initiatives. In January of 2020, we established a new ESG Board committee which is comprised of a majority of Non-Executive directors. We improved our CDP3 score from our initial C rating in 2018 to a B rating in 2020. We also continued to invest in training and development to support our people, particularly those who we cannot employ at present by offering tailored development programmes. We continue to make good progress on our growth strategy with a pipeline of close to 3,300 rooms. We are excited about other opportunities we are currently looking at. While we remain focused on delivering our growth strategy in our top target cities in Regional UK, we are also seeing opportunities in London. The outlook for the near-term remains uncertain at present. The roll out of vaccines both here in Ireland and abroad continues and I remain positive on the medium-term prospects for the Group. I believe that Dalata's key strengths will differentiate us as business recovers. Our core teams of excellent hotel operators are ready and excited to welcome customers back to our hotels when they re-open. The Group's robust financial position with an asset backed balance sheet, strong liquidity and comfortable gearing ensures Dalata is well placed as we head into 2021. Finally, our experienced management team and our record of identifying and securing opportunities in a crisis will help us position the business for a successful recovery and to look for growth opportunities that may arise out of the crisis. We are all ready for the challenges and opportunities that 2021 may bring and look forward to the year ahead with energy and enthusiasm. Dalata is unbowed and unbroken." ENDS About Dalata Dalata Hotel Group plc was founded in August 2007 and listed as a plc in March 2014. Dalata has a strategy of owning or leasing its hotels and also has a small number of management contracts. The Group's portfolio now consists of 29 owned hotels, 12 leased hotels and three management contracts with a total of 9,261 bedrooms. In addition to this, the Group is currently developing 13 new hotels and has plans to extend four of its existing hotels, adding close to 3,300 bedrooms in total. This will bring the total number of bedrooms in Dalata to over 12,500. For the full year 2020, Dalata reported revenue of €136.8 million and a loss after tax of €100.7 million. Dalata is listed on the Main Market of Euronext Dublin (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 2 March 2021, and this can be accessed using the contact details below. From Ireland dial: (01) 4311252 From the UK dial: (0044) 333 300 0804 From the USA dial: (001) 631 913 1422 From other locations dial: +353 1 431 1252 Participant PIN code: 87595008#
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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 Group 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 Group 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. Full Year 2020 Financial Performance
Summary of hotel performance
The impact of Covid-19 on the Group's business was significant with revenues decreasing by 68% to €136.8 million in 2020. From March, the Group's financial performance was severely impacted by the Covid-19 pandemic and changing government lockdowns and travel restrictions across its markets for the remainder of the year and into 2021.
All hotels were temporarily closed to the public for the majority of Q2 in line with guidelines issued by the Irish and UK governments. Occupancy for the Group amounted to 10.6% in this period, underpinned by demand from essential services. In Q3, occupancy increased to 35.9%. Our Regional Ireland and Regional UK hotels witnessed increased demand in the months of July and August as a result of staycations while Dublin and London were negatively impacted by on-going restrictions on international travel. Increased government restrictions from September hampered performance for the remainder of the year with business largely limited to local leisure guests resulting in occupancy of 19.4% for Q4. Following an increase in Covid-19 cases, the Irish government implemented the highest level of restrictions, necessitating the closure of hotels to the general public from 22 October for a period of six weeks.
The UK government implemented similar restrictions for the month of November. However, most manufacturing and construction services remained open for business compared to the previous lockdown in Q2, generating some limited demand for hotel rooms. Our Dublin and Regional Ireland hotels saw an improvement in early-mid December as a result of the easing of restrictions whilst restrictions stayed in place for most of the UK in December.
Adjusted EBITDA decreased by 88.5% to €18.7 million in 2020. The Group mitigated the financial impact of the reduction in occupancy through pro-active cost reductions since the onset of the Covid-19 pandemic. Dalata secured significant savings across all categories of expenditure. As the hotels were closed for substantial periods during the year, variable costs such as the cost of food and beverage purchases, consumables for bedrooms and OTA commissions decreased significantly. The Group introduced a combination of reduced working hours and progressive reduction of basic salary for employees and Directors. The utilisation of government grants and assistance was also of significant benefit to the Group. Government wage supports in the form of the Irish Wage Subsidy Schemes and the UK Coronavirus Job Retention Scheme of €20.8 million were received to support incomes of employees in Ireland and the UK. The Group also received financial assistance by way of a commercial rates waiver from the Irish and UK governments, amounting to a saving of €9.1 million for the year. Other government grants received, including the Covid Restrictions Support Scheme (CRSS) in Ireland, amounted to €1.6 million. These supports were critical in our efforts to protect employment within the Group. Performance Review | Segmental Analysis The following section analyses the results from the Group's portfolio of hotels in Dublin, Regional Ireland and the UK. 1. Dublin Hotel Portfolio
Our Dublin hotel portfolio consists of seven Maldron hotels, seven Clayton hotels, the Ballsbridge Hotel and The Gibson Hotel. Nine hotels are owned and seven are operated under leases. From March, the Dublin market was impacted by the sudden onset of the Covid-19 pandemic which affected the region for the course of 2020. The impact on the Dublin market was particularly acute due to its reliance on international travel and events resulting in revenue decreasing by 73.4% to €65.2 million and EBITDAR decreasing by 85.4% to €17.5 million in 2020. Our Dublin hotels had a promising start to 2020 earning revenue of €30.8 million in the first two months of the year. In March, business began to be impacted by corporate travel bans and the cancellation of events as a result of the Covid-19 pandemic. Occupancy for the period from January to March amounted to 61.7%. Full lockdown restrictions were imposed in Ireland at the end of March which necessitated the closure of all hotels to the general public. Occupancy reduced to 12.3% during the period from April to June underpinned by contracted business for essential services. The period July to September remained challenging for our Dublin hotels, with occupancy coming in at 25.9%. This was largely driven by leisure business and weekend demand. Although our Dublin hotels were open for the majority of this period, additional restrictions were introduced on 18 September which restricted travel between counties in Ireland before moving to Level 5 restrictions (which necessitated the closure of all hotels to the general public) on 22 October for a period of 6 weeks. Occupancy reduced to 17.0% during the period October to December as a result of varying travel restrictions in Ireland limiting corporate business, leisure stays, and a lack of events in the city. There was however some respite in December with the easing of restrictions for a period resulting in improved occupancy for this month, particularly at weekends, proving that people will travel (even locally) and partake in leisure activities once permitted. Dublin revenue amounted to €20.3 million and EBITDAR was €4.1 million in the second half of 2020, reflecting the challenging environment. However, the utilisation of government grants and assistance totalling €12.9 million for the year and proactive cost reductions reduced the impact of the lost revenue on EBITDAR. 2. Regional Ireland Hotel Portfolio
Our Regional Ireland hotel portfolio comprises seven Maldron hotels and six Clayton hotels located in Cork (x4), Galway (x3), Limerick (x2), Wexford (x2), Portlaoise and Sligo. Twelve hotels are owned and one is operated under a lease. Due to the onset of the Covid-19 pandemic from March, revenue decreased by 57.3% to €36.3 million and EBITDAR decreased by 67.5% to €8.0 million in 2020. Our Regional Ireland hotels had a strong start to 2020, earning revenue of €10.9 million during January and February with occupancy of 49.7% for the first quarter. In line with the Irish government restrictions, all of our hotels in Regional Ireland were closed to the general public from the end of March to the end of June, resulting in occupancy of 10.4% for Q2. Our Regional Ireland hotels enjoyed a more positive period from July to September, with the resurgence of domestic tourism resulting in an occupancy of 60.2% for the period. Staycations were strong particularly during July and August. Level 5 restrictions (which necessitated the closure of all hotels to the general public) were then imposed on 22 October for a period of 6 weeks resulting in a reduction in occupancy to 25.0% during the period October to December. Overall, the performance of our Regional Ireland hotels was stronger in second half of the year, delivering revenue of €20.7 million and EBITDAR of €8.3 million. The utilisation of government grants and assistance amounted to €8.9 million for the year which together with proactive cost reductions assisted EBITDAR performance. 3. UK Hotel Portfolio
Our UK hotel portfolio comprises nine Clayton hotels and three Maldron hotels with three hotels situated in London, six hotels in regional UK and three hotels in Northern Ireland. Dalata added the Clayton Hotel Cambridge (formerly The Tamburlaine Hotel, Cambridge) to its portfolio in November 2019 and a 44-bedroom extension at the Clayton Hotel Birmingham which was completed in November 2020. Seven hotels are owned, four are operated under long-term leases and one hotel is effectively owned through a 99 year lease. Due to the onset of the Covid-19 pandemic from March, revenue decreased by 64.2% to £31.0 million and EBITDAR decreased by 91.4% to £2.9 million in 2020. Similar to Dublin, the Group's London hotels were particularly impacted due to their reliance on international travel and events. The performance of our UK hotels was strong in early 2020, earning revenue of £12.4 million during January and February. All of our UK hotels were closed to the general public from the end of March until they were permitted to re-open in early July. This resulted in occupancy of 7.9% during the period from April to June. Our UK hotels were subject to varying levels of restrictions in the second half of 2020. During the period from July to September, occupancy came in at 35.7%. Regional UK and Northern Ireland hotels performed well during this period and saw the benefits of increased leisure business due to staycations. However, trade at our London hotels was hampered during these months due to the lack of events, international travel and corporate business in the city. Our Northern Ireland hotels were closed to the public on 16 October for a four-week period and on 27 November for a two-week period before closing to the public again on 26 December. Our Regional UK and London hotels were subject to varying levels of localised restrictions from mid-October before being closed to the public on 5 November for a four-week period. The hotels were then subject to varying levels of restrictions for the month of December. These restrictions meant that occupancy was limited to 19.4% for the period October to December, although most manufacturing and construction services remained open for business compared to the previous lockdown earlier in the year, generating some limited demand for hotel rooms. Overall, £13.5 million of revenue and £0.8 million of EBITDAR was generated by our UK hotels in the second half of 2020. The Group was able to mitigate the impact of the lost revenue to the bottom line through proactive cost reductions and government assistance in the form of rates waivers amounting to £3.3 million and grants of £0.1 million for the year. The utilisation of the Coronavirus Job Retention Scheme (furlough) allowed us to retain employees who were not working in the business. Government grants and assistance
The Group availed of support schemes from the Irish and UK governments through 2020. The Group's EBITDA for 2020 reflects government grants of €22.2 million and assistance (by way of commercial rates waivers) of €9.1 million totalling €31.3 million for 2020. The Group also received a grant amounting to €0.2 million for capital costs incurred in adapting premises to new public health requirements arising from the pandemic. The Group received wage subsidies from the Irish government amounting to €16.0 million in the form of the Temporary Wage Subsidy Scheme from 26 March to 31 August 2020 and the Employment Wage Subsidy Scheme from 1 September to 31 December 2020. In the UK, the Group received government grants in the form of the Coronavirus Job Retention Scheme amounting to £4.3 million (€4.7 million) in 2020. The Group also availed of government grants of €1.5 million which were introduced to support businesses during the pandemic and contribute towards re-opening and other operating costs. This principally related to the Covid Restrictions Support Scheme in Ireland. The Group also received financial assistance by way of commercial rates waivers for the period 27 March 2020 to 31 December 2020 in Ireland and from 1 April 2020 to 31 December 2020 in the UK. This represented a saving of €5.5 million at the Group's Irish hotels and £3.3 million (€3.6 million) at its UK hotels. The rates waivers in Ireland and the UK have continued into 2021. Under the warehousing of tax liabilities introduced by the Irish government, the payment of Irish VAT liabilities of €4.9 million and payroll tax liabilities of €7.8 million relating to the year ended 31 December 2020 have been deferred and are payable during the year ended 31 December 2021. In the UK, VAT liabilities of €0.5 million (£0.4 million) have been deferred until 31 March 2021 and payroll tax liabilities of €0.3 million (£0.3 million) will be paid by instalments during 2021, as agreed with the UK tax authorities, with the outstanding balance settled in full by 31 July 2021. Central costs and share-based payments expense Central costs amounted to €8.1 million in 2020. Central costs decreased by €5.5 million (40%) compared to the same period last year after excluding the impact in 2019 of the release of insurance provisions totalling €1.9 million. The Group took immediate action to mitigate against the impact from Covid-19 across a number of areas. These included the reduction of payroll through a combination of salary cuts and reduced working hours. Discretionary sales and marketing expenditure was suspended during periods of hotel closures and non-committed expenditure was deferred. The Board has also taken reductions in basic pay and fees. Property revaluations The Group revalues its property assets at each reporting date using independent external valuers. The principal valuation technique utilised is discounted cash flows which utilise asset specific risk adjusted discount rates and terminal capitalisation rates. They also have regard to relevant recent data on hotel sales activity metrics. Due to the immediate impact of Covid-19 on near term cash flows, revaluation losses of €174.4 million were recorded on our property assets in 2020, of which €13.4 million was recorded in the second half of the year. €143.6 million of the losses are recorded as reversals through the revaluation reserve (year ended 31 December 2019: net gain of €120.8 million). €199.3 million remains in the revaluation reserve as at 31 December 2020 relating to prior period unreversed revaluation gains. €30.8 million of the valuation reduction in 2020 is recorded through profit or loss, of which €3.5 million was recorded in the second half of the year (year ended 31 December 2019: net gain of €1.6 million). These revaluation losses through profit or loss relate to assets where the valuation is below previously recorded cost including capital investment. All losses may be reversed through the revaluation reserve and profit or loss respectively in future periods should valuations recover. The measures being taken globally to respond to Covid-19 has meant that the valuers have been faced with an unprecedented set of circumstances on which to base a judgement and therefore, they have reported their valuation on the basis of "material valuation uncertainty" in line with valuations on most property asset types. Adjusting items to EBITDA
Adjusted EBITDA is presented as an alternative performance measure to show the underlying operating performance of the Group. Consequently, items which are not reflective of normal trading activities or distort comparability either 'year on year' or with other similar businesses are excluded. As explained in the previous section, the Group recorded a net revaluation loss through profit or loss of €30.8 million in 2020 with €27.3 million incurred in the first half of 2020, and a further €3.5 million in the second half the year. On 24 April 2020, the Group completed the sale and leaseback of the Clayton Hotel Charlemont, Dublin. The sale results in the derecognition of the property asset. The property was previously valued based on the expected price that would be received to sell the asset outright. The valuation included all the future economic benefits for the assets on the assumption they are all disposed of. In a sale and subsequent leaseback, the Group retains the economic benefit 'post rent' of the asset for the period of the lease. This would typically lead to a loss on sale because of the proceeds being less than the fair value due to an element of the benefits no longer being reflected in the value of the right-of-use asset. This results in an accounting loss through profit or loss of €1.7 million. Following the impact of Covid-19 on expected trading, particularly on near term profitability, assets related primarily to our leased properties including goodwill, fixtures, fittings and equipment and right-of-use assets were assessed for impairment based on their discounted cash flows. The impact on near term cashflows has led to an impairment through profit or loss on a limited number of the Group's assets. These related primarily to leased properties resulting in impairments of right-of-use assets (€7.6 million), goodwill (€3.2 million) and fixtures, fittings and equipment owned by the hotels in leased properties (€1.0 million). Depreciation of right-of-use assets Under IFRS 16, the right-of-use assets are depreciated on a straight-line basis to the end of its useful estimated life, most typically the end of the lease term. The depreciation of right-of-use assets increased by €3.6 million to €20.7 million due principally to the additional depreciation on the new right-of-use assets arising from the lease of Clayton Hotel Charlemont, Dublin from April 2020 (€1.3 million) and full year impact of Clayton Hotel Cambridge which was leased from November 2019 (€1.4 million). Depreciation of property, plant and equipment In 2020, depreciation of property, plant and equipment increased by €0.4 million to €26.6 million. This increase was driven by refurbishment projects carried out at existing hotels during 2019 and 2020 which replaced items that had already been fully depreciated in previous accounting periods. This was offset to a large extent by a decrease in the depreciation charge following the revaluation losses of land and buildings during 2020 and the sale and leaseback of Clayton Hotel Charlemont, Dublin in April 2020. Finance Costs
Interest on lease liabilities increased primarily due to the full year impact of the lease on Clayton Hotel Cambridge entered into in November 2019 and the lease on Clayton Hotel Charlemont, Dublin from April 2020 which increased the charge by €1.9 million and €1.8 million respectively. As a result of the amended and restated loan facility in July 2020, the Group assessed the discounted cash flows under the new facility agreement discounted at the old effective interest rate compared to the discounted cash flows under the old facility agreement. This resulted in a modification loss of €4.3 million. The Group also incurred higher margins on loans as shown by an increase to the Group's weighted average interest cost in respect of Euro denominated borrowings and Sterling denominated borrowings for the year, which were 1.8% (2019: 1.4%) and 3.1% (2019: 2.9%) respectively. These increases were partially offset by additional capitalised interest on the site in Shoreditch, London (acquired in August 2019) and higher interest rates being capitalised for 2020 compared to 2019. Tax charge As the Group has incurred a loss before tax in 2020, the Group has recognised a tax credit of €10.8 million for the year ended 31 December 2020, primarily relating to the net value of tax losses which are available to utilise against both prior year taxable profits and future taxable profits. A significant portion of these tax losses can be set against prior year taxable profits. The current year has resulted in utilisable tax losses of €64.5 million, €16.5 million which have been carried back and used against previous taxes paid. Following Irish and UK government initiatives to support businesses impacted by Covid-19, these losses have generated initial cash refunds of €2.3 million during 2020 despite returns not yet filed. Additional losses of approximately €12.3 million will be carried back on submission of 2020 tax returns in 2021, generating additional refunds of €1.5 million. This will leave €35.7 million of unutilised 2020 losses which will be used against taxable profits in 2021 and future years as appropriate, reducing future corporation tax liabilities payable by €5.7 million based on currently enacted tax rates. The Group is confident that the remaining tax losses incurred during 2020 will be fully utilised in future periods. Due to tax incentives introduced following the Global Financial Crisis to stimulate the property market, no tax charge arises on the increase in value between the cost of developing Clayton Hotel Charlemont, Dublin and the sales proceeds received. (Loss)/earnings per share (EPS) The Group's EPS for 2020 was severely impacted by the Covid-19 pandemic. This resulted in a 93.3 cents decrease in basic earnings per share and a 69.2 cents decrease in adjusted basic earnings per share for 2020.
Proactive cash flow management ensures strong liquidity in 2020 Despite the ongoing headwinds from Covid-19, Dalata continues to maintain strong liquidity with significant financial headroom. At the end of 2020, the Group had cash resources of €50.2 million and undrawn committed debt facilities of €247.9 million. Throughout 2020, Dalata successfully implemented several measures to mitigate the financial consequences of the impact of Covid-19 and increased its cash and undrawn debt facilities from €161.8 million at the end of 2019 to €298.1 million at the end of 2020. Under the amended debt facility agreement there is a minimum liquidity covenant of €50.0 million until 30 March 2022. These actions included proactive cost reductions across all areas of the Group, focused working capital management, the postponement of uncommitted capital expenditure and the cancellation of the final 2019 dividend originally recommended by the Board. In addition, the Group was assisted by way of government support initiatives in Ireland and the UK, in the form of government grants and assistance and the deferral of VAT and payroll tax liabilities. The sale of Clayton Hotel Charlemont, Dublin for gross proceeds of €65.0 million in April, the additional €39.4 million debt facility agreed in July 2020 and the net proceeds of €92.0 million raised through an equity placing in September further strengthened liquidity. At 31 December 2020, the Group has commitments relating to capital expenditure of €30.6 million which relates primarily to the new Maldron Hotel and residential units at Merrion Road in Dublin. This project is expected to be completed in 2022 at which point the Group will legally complete the agreed contract to sell the residential units for up to €42.4 million to Irish Residential Properties REIT plc ("IRES"), the overall value depending on how Part V obligations (Social and Affordable housing allocation) are settled with Dublin City Council. Those funds will then be received. Projected lease payments payable under current lease contracts are €33.8 million for the year ended 31 December 2021. The increase in lease payments versus 2020 is principally due to the fact that the Group did not pay rent at Clayton Hotel Charlemont, Dublin in the first year of the lease agreement. Non-cancellable lease rentals of €2.7 million and other contractual obligations payable under the agreements for lease which have not yet commenced are together projected to amount to €5.2 million for the year ending 31 December 2021. The timing and amounts payable are subject to change depending on the date of commencement of these leases and final bedroom numbers. The Group continues to actively monitor and preserve cash. The Group have prepared projections which assume a gradual improvement throughout 2021 as vaccines are rolled out and restrictions are loosened. The projections have been stress tested to assume a slower recovery through 2021 and also to assume ongoing full lockdowns throughout 2021 with no additional mitigating actions. In the stressed scenarios, the Group has sufficient liquidity to continue to meet its obligations as they fall due, for at least 12 months from the date of approval of these consolidated financial statements and is not forecast to be in breach of its covenants for at least the next two testing periods up to testing at 30 June 2022. There are also additional mitigating strategies available to the Group which the Group have not modelled which would further support and improve the Group's position. Balance Sheet | Primed for recovery and opportunities
Although the Covid-19 pandemic has resulted in unprecedented challenges, Dalata's balance sheet remains robust with €1.2 billion of property, plant and equipment in prime locations across Ireland and the UK. Net Debt has also decreased from €375 million at the end of 2019 to €264 million at the end of 2020 driven by the initiatives and actions as discussed in the previous section. The Group's strong balance sheet ensures it is well positioned to take advantage of opportunities in the future. Property, plant and equipment Property, plant and equipment amounted to €1,202.7 million at the end of 2020. The decrease of €268.6 million in twelve months is driven principally by revaluation losses on property assets of €174.4 million, €71.9 million due to the sale of Clayton Hotel Charlemont, Dublin, foreign exchange movements which decreased the value of the UK hotel assets by €21.6 million and the depreciation charge of €26.6 million partially offset by additions of €25.4 million.
The Group typically allocates 4% of revenue to refurbishment capital expenditure. However, as a result of the pandemic, the Group suspended all non-committed capital expenditure in order to preserve cash. Furthermore, government restrictions necessitated the closure of most construction sites during the Covid-19 lockdown in the second quarter which slowed contracted spend. In the second half of 2020, the Group incurred an additional €1.3 million in refurbishment capital expenditure, for essential works only, bringing the total amount for the year to €8.4 million. €3.8 million was spent on refurbishing bedrooms and a further €4.6 million was incurred on public areas, back of house areas and completing health and safety works. During the year, the Group incurred €17.0 million on previously committed development capital expenditure including:
Contract fulfilment costs Contract fulfilment costs relate to the Group's contractual agreement with IRES entered into on 16 November 2018, for IRES to purchase a residential development the Group is developing (comprising 69 residential units) on the site of the former Tara Towers hotel. The overall sale value of the transaction is expected to be up to €42.4 million (excluding VAT). Dalata incurred development costs in fulfilling the contract of €8.8 million during the year.
Right-of-use assets and lease liabilities At 31 December 2020, the Group's right-of-use assets amounted to €411.0 million and lease liabilities amounted to €399.6 million.
Right-of-use assets are recorded at cost less accumulated depreciation and impairment. The initial cost comprises the initial amount of the lease liability adjusted for lease prepayments and accruals at the commencement date, initial direct costs and reclassifications from intangible assets or accounting adjustments related to sale and leasebacks where applicable. Lease liabilities are initially measured at the present value of the outstanding lease payments, discounted using the estimated incremental borrowing rate attributable to the lease. The lease liabilities are subsequently remeasured during the lease term following the completion of rent reviews, a reassessment of the lease term or where a lease contract is modified. Additions relate to the Group entering into a 35 year lease in April 2020 of the Clayton Hotel Charlemont in Dublin following a sale and leaseback transaction which has resulted in the recognition of a right-of-use asset and lease liability of €56.3 million and €46.6 million respectively. The other additions relate to the extension of the Clayton Hotel Birmingham of €5.4 million (£4.8 million) which includes €0.1 million of initial direct costs and a lease liability of €5.3 million (£4.7 million). Following the impact of Covid-19 on expected trading, particularly on near term profitability, assets related primarily to our leased properties including goodwill, fixtures, fittings and equipment and right-of-use assets were assessed for impairment based on their discounted cash flows. The impact on near term cashflows has led to an impairment through profit or loss on a limited number of the Group's assets resulting in impairments of right-of-use assets (€7.6 million), goodwill (€3.2 million) and fixtures, fittings and equipment owned in leased properties (€1.0 million). The remeasurement of lease liabilities relates to the reassessment of the lease liabilities of two leases following agreed rent reductions as a direct consequences of temporary hotel closures during the Covid-19 pandemic. The associated right-of-use assets have decreased accordingly. Loans and borrowings As at 31 December 2020, the Group had loans and borrowings of €314.1 million and undrawn committed debt facilities of €247.9 million.
The Group refinanced its debt facility in 2018 with a new €525 million multicurrency debt facility consisting of a €200 million term loan facility and a €325 million revolving credit facility ("RCF"). In August 2019, the Group availed of its option to extend this facility for an additional year so it now expires on 26 October 2024. In March 2020, the Group agreed an amendment to its facility agreement with its banking club to provide additional headroom on its covenants for the next two covenant reporting periods, 30 June 2020 and 31 December 2020 as a result of the impact of Covid-19. In July 2020, the Group entered into an amended and restated facility agreement with its banking club which raised an additional €39.4 million in revolving credit facilities with a maturity date of 30 September 2022. €20.1 million of revolving credit facilities had their maturity shortened to 30 September 2022 from 26 October 2024. The revised covenants in this agreement include, amongst others, Net Debt to Value covenants and a minimum liquidity restriction of €50 million whereby either cash, remaining undrawn facilities or a combination of both must not fall below €50 million at any point to 30 March 2022. The revised covenants were put in place to avoid potential breaches in covenants based on trailing twelve-month EBITDA during the period of recovery in trading profits following the impact of Covid-19. The Group will revert to the previous covenants comprising Net Debt to EBITDA and Interest Cover for testing at 30 June 2022. The Group is in compliance with its covenants as at 31 December 2020. Net Debt to Value1 amounted to 23% at 31 December 2020. In line with IFRS 9, a modification loss of €4.3 million was immediately recognised in profit or loss in 2020 as a result of the amended and restated facility agreement. Costs of €0.6 million incurred in relation to the amendment were capitalised and are amortised to profit or loss on an effective interest rate basis over the term. These loans and borrowings are recognised at amortised cost with directly attributable costs being amortised to profit or loss on an effective interest rate basis over the term. The Group limits its exposure to foreign currency by using Sterling debt to act as a natural hedge against the impact of Sterling rate fluctuations on the euro value of the Group's UK assets. The Group is also exposed to floating interest rates on its debt obligations and uses hedging instruments to mitigate the risk associated with interest rate fluctuations. This is achieved by entering into interest rate swaps which hedge the variability in cash flows attributable to the interest rate risk. Principal Risks and Uncertainties The principal risks and uncertainties facing the Group are:
1 See Supplementary Financial Information which contains definitions and reconciliations of Alternative Performance Measures ("APM") and other definitions. 2 IBEC, Covid restrictions disproportionately impacting experience economy, 8 October 2020. 3 CDP is a not-for-profit charity that runs the global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts. 4 The main adjusting items are the net property revaluation loss of €30.8 million (2019: net revaluation gain of €1.6 million) following the valuation of property assets and impairments of €11.8 million on other assets (including goodwill and right-of-use assets) which were significantly impacted by Covid-19. Further detail is provided below. 5 Dublin performance statistics exclude the Ballsbridge Hotel as the hotel effectively did not trade for most of 2020. 6 Performance statistics reflect full year performance of all hotels in this portfolio for both years. 7 Performance statistics reflect full year performance of all hotels in this portfolio for both years regardless of when acquired and include Clayton Hotel Cambridge (leasehold interest entered into in November 2019). 8 Other non-current assets comprise investment property, deferred tax assets and other receivables (which primarily relate to professional fees associated with future lease agreements for hotels currently being constructed or in planning). 9 Other liabilities comprise deferred tax liabilities, derivatives, provision for liabilities and current tax liabilities. Dalata Hotel Group plc Condensed consolidated statement of profit or loss and other comprehensive income for the year ended 31 December 2020
Dalata Hotel Group plc Condensed consolidated statement of financial position at 31 December 2020
*The split of lease liabilities between current liabilities and non-current liabilities at 31 December 2019 has been reclassified on a basis consistent with the presentation applied at 31 December 2020, which reflects the timing of the future capital repayments of the lease liabilities (note 10).
On behalf of the Board:
Dalata Hotel Group plc Condensed consolidated statement of changes in equity for the year ended 31 December 2020
Dalata Hotel Group plc Condensed consolidated statement of changes in equity for the year ended 31 December 2019
Dalata Hotel Group plc Condensed consolidated statement of cash flows for the year ended 31 December 2020
Dalata Hotel Group plc Notes to the condensed consolidated financial statements
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 2020 or 2019 and therefore does not include all of the information required for full annual financial statements. The condensed consolidated financial statements for the year ended 31 December 2020 comprise the Company and its subsidiary undertakings (the 'Group') and were authorised for issue by the Board of Directors on 1 March 2021. Full statutory financial statements for the year ended 31 December 2020, prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the EU, together with an unqualified audit report thereon (containing an emphasis of matter drawing attention to the disclosures of the material valuation uncertainty in respect of the estimated fair value of the Group's land and buildings as at 31 December 2020, without qualifying the audit report) 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 2019 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 or million (this is clearly set out in the condensed financial statements where applicable), 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.
In preparing these financial statements, the key judgements and estimates impacting the consolidated financial statements were the same as those that applied to the consolidated financial statements as at and for the year ended 31 December 2019. At 31 December 2020, there were a number of additional estimation uncertainties as a result of Covid-19 which impacted the valuation of properties (note 9) and the impairment review of other assets (note 7).
The key judgements and estimates impacting these condensed consolidated financial statements are as follows:
Significant judgements
Key sources of estimation uncertainty
The value of the Group's property at 31 December 2020 reflects open market valuations carried out as at 31 December 2020 by independent external valuers. The valuations have been reported on the basis of 'material valuation uncertainty', as set out in VPS 3 and VPGA 10 of the RICS Valuation Global Standards in light of increased uncertainty as less weight can be attached to previous market evidence for comparative purposes, to fully inform opinions of value, as a result of the Covid-19 pandemic. The material valuation uncertainty basis does not invalidate the valuations.
Going concern The Covid-19 pandemic has severely impacted the trade and operations of the Group and resulted in a material loss of revenue for the year ended 31 December 2020. During the year certain hotels had to temporarily close (principally between March and July) or were impacted by local or national government restrictions put in place in Ireland and the United Kingdom ('UK'), including being only able to open at a limited capacity for essential services business during certain times. Travel and operational restrictions and health and safety requirements, such as social distancing, have also impacted, and continue to impact, the trade and operations of the Group.
At the start of the pandemic in early March 2020, the Group was well positioned with a lowly levered financial position and significant levels of liquidity. Given the speed and scale of the impact, the Directors and management reacted early to implement immediate measures that protected the position and viability of the Group and implemented further measures as the effects continued.
The measures taken by the Group include, but are not limited to, the following:
On 20 March 2020, the Group agreed an amendment to the facility agreement with its banking club to provide additional headroom on its covenants for the two covenant reporting periods, at 30 June 2020 and 31 December 2020 as a result of the impact of Covid-19.
On 24 April 2020, the Group successfully completed the sale and leaseback of Clayton Hotel Charlemont, Dublin for a total consideration of €64.2 million with a further €0.8 million receivable contingent on the addition of three bedrooms to the property. This transaction helped to further improve the liquidity and cash position of the Group.
On 9 July 2020, the Group entered into an amended and restated facility agreement with its banking club to provide additional flexibility and liquidity to support the Group following the impact of Covid-19. The Group raised an additional €39.4 million in revolving credit facilities with a maturity date of 30 September 2022 and the maturity of €20.1 million of revolving credit facilities was shortened to 30 September 2022 from 26 October 2024. The Group also agreed a new temporary suite of covenants with its banking club. The revised covenants include Net Debt to Value covenants and a minimum liquidity restriction whereby either cash, remaining available facilities or a combination of both must not fall below €50 million at any point to 30 March 2022. The revised covenants were put in place to avoid potential breaches in covenants based on trailing 12 month EBITDA during the period of recovery in trading profits following the impact of Covid-19. The Group will revert to the previous covenants comprising Net Debt to EBITDA and Interest Cover for testing at 30 June 2022. The Group is in compliance with its covenants as at 31 December 2020.
In September 2020, the Group successfully conducted a placing of 37,000,000 new Ordinary Shares, raising gross proceeds of €94.4 million (net proceeds of €92.0 million). This strengthened the financial position and further improved the liquidity and cash position of the Group.
The Group continues to actively monitor and preserve cash. The Group have prepared projections which assume a gradual improvement throughout 2021 as vaccines are rolled out and restrictions are loosened. The projections have been stress tested to assume a slower recovery through 2021 and also to assume ongoing full lockdowns throughout 2021 with no additional mitigating actions. In the stressed scenarios, the Group has sufficient liquidity to continue to meet its obligations as they fall due, for at least 12 months from the date of approval of these consolidated financial statements and is not forecast to be in breach of its covenants for at least the next two testing periods up to testing at 30 June 2022. There are also additional mitigating strategies available to the Group which the Group have not modelled which would further support and improve the Group's position. These include more severe forms of cost cutting, negotiations with landlords on rental obligations, sale of an asset or a further share placing.
Based on the current liquidity and capital position, the current projections and the results of stress testing of these projections, the Directors are satisfied that it is appropriate that the consolidated financial statements are prepared on a going concern basis and that there are no material uncertainties in that regard which are required to be disclosed in the consolidated financial statements.
Significant accounting policies The accounting policies applied in these condensed consolidated financial statements are consistent with those applied in the consolidated financial statements as at and for the year ended 31 December 2019. Accounting policies for government grants and government assistance and sale and leaseback accounting, as set out below, were established during the year ended 31 December 2020 as there were new transactions since 31 December 2019 which did not occur in the prior year.
Government grants and government assistance Government grants and government assistance have emerged as key factors in the business during the pandemic. The impact of government grants and government assistance is disclosed in note 6.
Government grants represent the transfers of resources to the Group from the governments in Ireland and in the UK in return for past or future compliance with certain conditions relating to the Group's operating activities. Income-related government grants are recognised in profit or loss on a systematic basis over the periods in which the Group recognises as expenses the related costs for which the grants are intended to compensate. The Group accounts for these government grants in profit or loss via offset against the related expenditure.
Capital-related government grants received by the Group related to assets are presented in the consolidated statement of financial position by deducting the grant in arriving at the carrying amount of the asset. The grant is recognised in profit or loss over the life of the depreciable asset as a reduced depreciation expense.
Government assistance is action by a government which is designed to provide an economic benefit specific to the Group or subsidiaries who qualify under certain criteria. Government assistance received by the Group includes a waiver of commercial rates for certain hotel properties and also the deferral of payment of payroll taxes and VAT liabilities and has been disclosed in these financial statements.
Sale and leaseback accounting policy During the year ended 31 December 2020, the Group completed the sale and leaseback of Clayton Hotel Charlemont, Dublin for a total consideration of €64.2 million with a further €0.8 million receivable contingent on the addition of three bedrooms to the property (note 9).
A sale and leaseback occurs where there is a transfer of an asset by the Group to a purchaser/lessor and the Group enters into an agreement with that purchaser/lessor to lease the asset. The Group applies the requirements of IFRS 15 Revenue from contracts with customers in assessing whether a sale has occurred by determining whether a performance obligation has been satisfied.
Where a sale and leaseback of an asset has occurred, the asset is derecognised and a lease liability and corresponding right-of-use asset is recognised. The Group measures the right-of-use asset arising from the leaseback at the proportion of the previous carrying amount of the asset that relates to the right-of-use retained by the Group. Accordingly, the Group recognises only the amount of any gain or loss that relates to the rights transferred to the purchaser/lessor in profit or loss as calculated in accordance with IFRS 16.
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 Executive Directors.
The Group segments its leased and owned business by geographical region within which the hotels operate being Dublin, Regional Ireland and the UK. These comprise the Group's three reportable segments.
Dublin, Regional Ireland and UK segments These segments are concerned with hotels that are either owned or leased by the Group. As at 31 December 2020, the Group owns 27 hotels (31 December 2019: 28 hotels) and has effective ownership of one further hotel which it operates (31 December 2019: one hotel). It also owns the majority of one of the other hotels which it operates (31 December 2019: one hotel). The Group also leases 12 hotel buildings from property owners (31 December 2019: 11 hotels) 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 operating 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, variable lease costs (where linked to turnover or profit) made to lessors.
The Covid-19 pandemic has resulted in a material loss of revenue for the year ended 31 December 2020. Varying global restrictions on travel and numerous public health initiatives have resulted in significantly reduced demand in the wider hospitality industry. Since March 2020, the Group's hotels have been subject to varying local and national government restrictions in Ireland and the UK. This included the temporary closure of certain hotels between March and July 2020. In the second half of 2020, all hotels except for one hotel remained open however, periodically were only open at a limited capacity to provide for essential services business.
Group EBITDA represents earnings before interest on lease liabilities, other interest and finance costs, tax, depreciation of property, plant and equipment and right-of-use assets and amortisation of intangible assets.
Adjusted EBITDA is presented as an alternative performance measure to show the underlying operating performance of the Group excluding items which are not reflective of normal trading activities or distort comparability either year on year or with other similar businesses. Consequently, Adjusted EBITDA represents Group EBITDA before:
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 the UK represents the 'Adjusted EBITDA' for each geographical location before central costs, share-based payments expense and other income. It is the net operational contribution of leased and owned hotels in each geographical location.
'Segmental results - EBITDAR' for Dublin, Regional Ireland and the UK represents 'Segmental results - EBITDA' before variable lease costs.
As a result of the amended and restated loan facility in July 2020, the Group recognised a modification loss of €4.3 million in profit or loss (note 4). As this is not reflective of normal trading activity, it is presented as an Adjusting item to arrive at Adjusted loss before tax and Adjusted loss after tax (note 14).
Disaggregated revenue information Disaggregated revenue is reported in the same way as it is reviewed and analysed internally by the chief operating decision makers, primarily, the Executive Directors. The key components of revenue reviewed by the chief operating decision makers are:
The above information on assets, 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 of £269.5 million (€299.8 million) are classified as liabilities in the UK. £266.5 million (€296.4 million) of these Sterling borrowings act as a net investment hedge as at 31 December 2020 (31 December 2019: £266.5 million (€313.2 million)). Loans and borrowings denominated in Euro are classified as liabilities in the Republic of Ireland (note 12).
Hotel pre-opening expenses relate to costs incurred by the Group in advance of opening new hotels. In 2019, this related to one new hotel opened in late January 2019 and in 2020, this relates to two hotels scheduled to open in 2021. These costs primarily relate to payroll expenses, sales and marketing costs and training costs of new staff.
Variable lease costs relate to lease payments linked to performance which are excluded from the measurement of lease liabilities as they are not related to an index or rate or are not considered fixed payments in substance.
Administrative expenses Administrative expenses of €158.5 million (2019: €155.5 million) include depreciation of €47.3 million (2019: €43.3 million) as set out above, net revaluation losses through profit or loss of €30.8 million (note 9) (2019: gain of €1.6 million), impairments of goodwill, right-of-use assets and related fixtures, fittings and equipment of €11.8 million (note 7) (2019: nil), and loss on sale and leaseback of €1.7 million (note 9) (2019: nil). Excluding these items, other administrative expenses have decreased by €46.9 million (or 41.2%) to €66.9 million.
The Group uses interest rate swaps to convert the interest rate on part of its debt from floating rate to fixed rate. The cash flow hedge amount reclassified from other comprehensive income is shown separately within finance costs and primarily represents the additional interest the Group paid as a result of the interest rate swaps.
As a result of the amended and restated loan facility in July 2020 (note 12), the Group assessed whether the discounted cash flows under the new facility agreement discounted at the old effective interest rate were substantially different from the discounted cash flows under the old facility agreement. The modified loans were deemed to be non-substantially modified which resulted in a modification loss of €4.3 million being recognised in profit or loss during the year ended 31 December 2020.
Other finance costs include amortisation of capitalised debt costs, commitment fees and other banking fees.
Net exchange losses on financing activities relate principally to loans which did not form part of the net investment hedge.
Interest on loans and borrowings amounting to €1.4 million was capitalised to assets under construction on the basis that this cost was directly attributable to the construction of qualifying assets (note 9) (2019: €0.4 million). Interest on loans and borrowings amounting to €0.3 million was capitalised to contract fulfilment costs on the basis that this cost was directly attributable to the construction of qualifying assets (note 11) (2019: €0.1 million). The capitalisation rates applied by the Group, which were reflective of the weighted average interest cost in respect of Euro denominated borrowings and Sterling denominated borrowings for the year, were 1.8% (2019: 1.4%) and 3.1% (2019: 2.9%) respectively.
The total share-based payments expense for the Group's employee share schemes charged to profit or loss during the year was €2.3 million (2019: €2.7 million), analysed as follows:
Details of the schemes operated by the Group are set out below:
Long Term Incentive Plans During the year ended 31 December 2020, the Board approved the conditional grant of 2,282,533 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 (100 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 2020 to 31 December 2022 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 of €0.44 before taking account of the accounting impact of IFRS 16, as disclosed in the Group's 2022 audited consolidated financial statements, with 100% vesting for Adjusted Basic EPS of €0.55 or greater before taking account of the accounting impact of IFRS 16. Awards will vest on a straight-line basis for performance between these points. EPS targets may be amended in restricted circumstances if an event occurs which causes the Remuneration Committee to determine an amended or substituted performance condition would be more appropriate and not materially more or less difficult to satisfy. Participants are also entitled to receive a dividend equivalent amount in respect of their awards.
Movements in the number of share awards are as follows:
During the year ended 31 December 2020, the Company issued 549,379 shares on foot of the vesting of awards granted in May 2017 under the terms of the 2017 LTIP. Over the course of the three-year performance period, 33,443 share awards lapsed due to vesting conditions which were not satisfied. 264,092 shares lapsed unvested due to TSR performance below maximum.
The weighted average share price at the date of exercise for awards exercised during the year was €2.38.
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:
Dividend equivalents accrue on awards that vest up to the time of vesting under the 2017 LTIP, and therefore the dividend yield has been set to zero to reflect this. Such dividend equivalents will be released to participants in the form of additional shares on vesting subject to the satisfaction of performance criteria.
Awards granted from 2017 to 2020 under the 2017 LTIP include 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, which equals the share price less exercise price. 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 over the vesting period of the award is reviewed in each reporting period and the accounting charge is adjusted accordingly.
Share Save schemes The Remuneration Committee of the Board of Directors approved the granting of share options under the UK and Ireland Share Save schemes (the 'Schemes') for all eligible employees across the Group from 2016 to 2020. 509 employees availed of the Schemes granted in 2020 (527 employees availed of the Schemes granted in 2019). Each Scheme is for three years and employees may choose to purchase shares over the six-month period following the end of the three year period at the fixed discounted price set at the start of the three year period. The share price for the Schemes has been set at a 25% discount for Republic of Ireland based employees and 20% for UK based employees in line with the maximum amount permitted under tax legislation in both jurisdictions.
During the year ended 31 December 2020, the Company issued 82,901 shares on maturity of the share options granted as part of the Scheme granted in 2016. The weighted average share price at the date of exercise for options exercised during the year was €4.76.
Movements in the number of share options and the related weighted average exercise price ("WAEP") are as follows:
The weighted average remaining contractual life for the share options outstanding at 31 December 2020 is 3.2 years (31 December 2019: 2.5 years).
At 31 December 2020, 139,815 shares are exercisable relating to the SAYE scheme granted in 2017 which ended in September 2020 and employees have a six month period to exercise their option. The weighted average exercise price of these options is €4.14.
Payroll-related government grants As a result of the impact of the Covid-19 pandemic on the Group, the Group availed of the Irish and UK government schemes in relation to wage subsidies. The Group availed of the Temporary Wage Subsidy Scheme in Ireland from 26 March 2020 to 31 August 2020, the Employment Wage Subsidy Scheme in Ireland from 1 September 2020 to 31 December 2020, and the Coronavirus Job Retention Scheme in the UK from 1 March 2020 to 31 December 2020. The Group continues to avail of the wage subsidy schemes.
The Temporary Wage Subsidy Scheme was available to employers who lost a minimum of 25% of turnover as a result of the Covid-19 pandemic and who kept employees on their payroll during this time. The scheme has been availed of for employees who were on reduced hours and/or reduced pay. The scheme was replaced by the Employment Wage Subsidy Scheme from 1 September 2020 and contains similar conditions to the preceding scheme.
In the UK, the Group availed of the Coronavirus Job Retention Scheme. Up to 30 June 2020, the scheme only applied to furloughed employees and employees still working in the Group were not eligible. From 1 July 2020, the UK government introduced a flexible furlough scheme where employees can work part time and an employer can claim subsidies which are passed on to employees for the hours not worked. In order to be eligible for the scheme, employees must have been on at least a three week furlough period prior to 10 June 2020.
The Group was in compliance with all the conditions of the respective schemes during the year ended 31 December 2020 and availed of these schemes. The grant income received has been offset against the related costs in cost of sales and administrative expenses in profit or loss.
Other government grants During the year ended 31 December 2020, the Group availed of a number of other grants schemes, including and not limited to the Covid Restrictions Support Schemes in Ireland, introduced by Irish and UK governments to support businesses during the Covid-19 pandemic and contribute towards re-opening and other operating costs. These grants, which totalled €1.5 million, have been offset against the related costs of €1.5 million in administrative expenses in profit or loss.
During the year ended 31 December 2020, the Group received a grant amounting to €0.2 million for capital costs incurred in adapting premises for new public health requirements arising from the pandemic. The grant was conditional on being utilised for eligible expenditure. The grant has been presented as a deduction in arriving at the carrying amount of the asset in the statement of financial position.
Government assistance In addition, the Group received financial assistance by way of commercial rates waivers and deferrals of tax liabilities from the Irish and UK governments.
In Ireland, the Group benefitted from a commercial rates waiver of €5.5 million for the period 27 March 2020 to 31 December 2020. In the UK, the Group benefitted from a commercial rates waiver of £3.3 million (€3.6 million) from 1 April 2020 to 31 December 2020 (2019: €nil).
Under the warehousing of tax liabilities legislation introduced by the Financial Provisions (Covid-19) (No. 2) Bill 2020 and Finance Act 2020 (Act 26 of 2020), Irish VAT liabilities of €4.9 million and payroll tax liabilities of €7.8 million relating to the year ended 31 December 2020 have been deferred and are payable during the year ending 31 December 2021.
In the UK, VAT liabilities of £0.4 million (€0.5 million) have been deferred until 31 March 2021. Payroll tax liabilities are being paid by instalments, as agreed with the UK tax authorities. The outstanding deferred UK payroll tax balance as at 31 December 2020 is £0.3 million (€0.3 million) which is payable by 31 July 2021.
At 31 December 2020, as a result of the impact of Covid-19 on expected trading, particularly on near term profitability, and the carrying amount of the net assets of the Group being more than its market capitalisation, the Group tested each cash generating unit ('CGU') for impairment as both were deemed to be potential impairment indicators. Impairment arises where the carrying value of the CGU (which includes, where relevant, revalued properties and/or right-of-use assets, allocated goodwill, fixtures, fittings and equipment) exceeds its recoverable amount on a value in use ('VIU') basis.
On 31 December 2020, the market capitalisation of the Group was lower than the net assets of the Group (market capitalisation is calculated by multiplying the share price on that date by the number of shares in issue). Market capitalisation can be influenced by a number of different market factors and uncertainties, most evidently the impact of Covid-19 in 2020 and more specifically, the tightening of government restrictions and potential lockdowns at 31 December 2020. In addition, share prices reflect a discount due to lack of control rights. The Group as a whole is not considered to be a CGU for the purposes of impairment testing and instead each hotel operating unit is considered as a CGU as it is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.
At 31 December 2020, the recoverable amounts of the Group's CGUs were based on VIU, determined by discounting the estimated future cash flows generated from the continuing use of these hotels. VIU cash flow projections are prepared for each CGU and then compared against the carrying value of the assets, including goodwill, properties, fixtures, fittings and equipment and right-of-use assets, in that CGU. The VIU assumptions are detailed below. The VIU cash flows take into account changes in market conditions as a result of Covid-19.
The VIU estimates were based on the following key assumptions:
At 31 December 2020, the recoverable amount was deemed lower than the carrying value in certain of the Group's CGUs. Where the VIU is lower than the carrying value of the CGU, an impairment is recognised, first against goodwill, and then pro-rata against the other assets in the CGU. Goodwill relating to two CGUs has been impaired by €3.2 million (note 8). In addition, an impairment of €7.5 million of right-of-use assets (note 10) and €1.0 million of fixtures, fittings and equipment (note 9) was recognised during the year ended 31 December 2020.
At 31 December 2020, the carrying value of the Group's other CGUs did not exceed their recoverable amount and no impairment was required following assessment.
The impact of Covid-19 continues to unfold and projections are subject to a greater level of uncertainty than usual as governments worldwide continue to implement measures to protect public health and also to support business and employment. The impact on the hospitality industry has been severe and predicting the path and the eventual containment of Covid-19 and the consequent lifting of travel and public health restrictions is difficult particularly in the immediate short term. Therefore, the estimation of cash flows which take into account the ongoing impacts of the pandemic, prepared to support the VIU estimates, is a key source of estimation uncertainty. Projections have been prepared on a conservative basis taking into account all information reasonably available in the environment at 31 December 2020. Broadly, the cash flow projections assume that significant restrictions on hospitality and travel will be in place for the first half of 2021. As the vaccine roll out continues, the projections assume international travel gradually returns during the second half of 2021 which continues through 2022 with trade broadly back to more normal levels in 2023.
If the 2021 EBITDA forecasts used in cashflow in VIU estimates for impairment testing as at 31 December 2020 had been forecast 25% lower, this would have resulted in an additional impairment charge of €0.5 million for the year ended 31 December 2020 for right-of-use assets and fixtures, fittings and equipment. There would have been no further impairment of goodwill.
Goodwill Goodwill is attributable to factors including expected profitability and revenue growth, increased market share, increased geographical presence, the opportunity to develop the Group's brands and the synergies expected to arise within the Group after acquisition.
As at 31 December 2020, the goodwill cost figure includes €11.4 million (£10.3 million) which is attributable to goodwill arising on acquisition of foreign operations. Consequently, such goodwill is subsequently retranslated at the closing rate. The retranslation at 31 December 2020 resulted in a foreign exchange loss of €0.7 million and a corresponding decrease in goodwill. The comparative retranslation at 31 December 2019 resulted in a foreign exchange gain of €0.6 million.
The above table represents the number of CGUs to which goodwill was allocated at 31 December 2020.
Annual goodwill testing The Group tests goodwill annually for impairment and more frequently if there are indications that goodwill might be impaired. Due to the Group's policy of revaluation of land and buildings, and the allocation of goodwill to individual CGUs, impairment of goodwill can occur as the Group realises the profit and revenue growth and synergies which underpinned the goodwill. As these materialise, they are recorded as revaluation gains to the carrying value of the property and consequently, elements of goodwill may be required to be written off if the carrying value of the CGU (which includes revalued property and allocated goodwill) exceeds its recoverable amount on a VIU basis. The impairment of goodwill is through profit or loss though the revaluation gains on property are taken to reserves through other comprehensive income provided there were no previous impairment charges through profit or loss.
The impact of Covid-19 has had a material impact on the operating revenues of the business since March 2020. Following an impairment review of the CGUs containing goodwill, goodwill related to two of the Group's CGUs has been impaired resulting in impairment charges in 2020 of €2.6 million for a CGU relating to an Irish hotel and €0.6 million (£0.6 million) for a CGU relating to a UK hotel (note 7). The Group continues to monitor the impact of Covid-19 on the operating results of the Group and also the impact of the UK's departure from the European Union.
Future under-performance in any of the Group's major CGUs may result in a material write-down of goodwill which would have a substantial impact on the Group's loss and equity.
(i) Moran Bewley Hotel Group and other single asset acquisitions For the purposes of impairment testing, goodwill has been allocated to each of the hotels acquired as CGUs. As these hotel properties are valued annually by independent external valuers, the recoverable amount of each CGU is based on a fair value less costs of disposal estimate, or where this value is less than the carrying value of the asset, the VIU of the CGU is assessed.
Costs of acquisition of a willing buyer which are factored in by external valuers when calculating the fair value price of the asset are significant for these assets (2020: Ireland 9.92%, UK 6.8%, 2019: Ireland 9.96%, UK 6.8%). Purchasers' costs are a key difference between VIU and fair value less costs of disposal as prepared by external valuers.
At 31 December 2020, the recoverable amounts of the ten CGUs were based on VIU, determined by discounting the future cash flows generated from the continuing use of these hotels. Note 7 details the assumptions used in the VIU estimates for impairment testing.
As a result of the impairment test, goodwill relating to one of the Group's CGUs was impaired at 31 December 2020 resulting in an impairment charge of €0.6 million (£0.6 million) for a CGU relating to a UK hotel (note 7).
(ii) 2007 Irish hotel operations acquired For the purposes of impairment testing, goodwill has been allocated to each of the CGUs representing the Irish hotel operations acquired in 2007. Eight hotels were acquired at that time but only four of these hotels had goodwill associated with them. The goodwill related to one of these CGUs was fully impaired during the year ended 31 December 2020. The remaining three of these hotels are valued annually by independent external valuers, as the freehold interest in the property is owned by the Group. Where hotel properties are valued annually by independent external valuers, the recoverable amount of each CGU is based on a fair value less costs of disposal estimate, or where this value is less than the carrying value of the asset, the VIU of the CGU is assessed. The recoverable amount at 31 December 2020 of each of these CGUs which have associated goodwill is based on VIU. VIU is determined by discounting the future cash flows generated from the continuing use of these hotels.
Costs of acquisition of a willing buyer which are factored in by external valuers when calculating the fair value price of the asset are significant for these assets (2020: 9.92%, 2019: 9.96%). Purchasers costs are a key difference between VIU and fair value less costs of disposal as prepared by external valuers.
Note 7 details the assumptions used in the VIU estimates.
Goodwill relating to one of the Group's 2007 Irish hotel operations acquired CGUs was impaired during the year ended 31 December 2020 resulting in an impairment of €2.6 million (note 7). There is no goodwill remaining in this CGU at 31 December 2020.
The key judgements and assumptions used in estimating the future cash flows in the impairment tests are subjective and include projected EBITDA (as defined in note 2), discount rates and the duration of the discounted cash flow model. Expected future cash flows are inherently uncertain and therefore liable to change materially over time (note 7).
Other indefinite-lived intangible assets Acquired leasehold interests The indefinite-lived intangible asset amounting to €20.5 million at 31 December 2018, related to the Group's acquired leasehold interest in The Gibson Hotel and was transferred to right-of-use assets on 1 January 2019 in accordance with the transition provisions of IFRS 16.
Other intangible assets Other intangible assets of €1.7 million at 31 December 2020 represent a software licence agreement entered into by the Group during the year ended 31 December 2019. At the commencement date, there were €1.2 million of prepayments relating to the software licence which were transferred to intangible assets. Additions of €0.1 million relating to the software licence were made during the year ended 31 December 2020. This software licence will run to 31 January 2024 and is being amortised on a straight-line basis over the life of the asset.
The Group reviews the carrying amounts of other intangible assets annually to determine whether there is any indication of impairment. If any such indicators exist then the asset's recoverable amount is estimated.
At 31 December 2020, there were no indicators of impairment present and the Directors concluded that the carrying value of other intangible assets was not impaired at 31 December 2020.
The carrying value of land and buildings (revalued at 31 December 2020) is €1,058.5 million (2019: €1,324.5 million). The value of these assets under the cost model is €834.2 million (2019: €927.8 million). In 2020, unrealised revaluation gains of €1.1 million and unrealised losses of €144.7 million have been reflected through other comprehensive income and in the revaluation reserve in equity. A revaluation loss of €32.2 million and a reversal of prior period revaluation losses of €1.4 million have been reflected in administrative expenses through profit or loss.
Included in land and buildings at 31 December 2020 is land at a carrying value of €301.3 million (2019: €499.8 million) which is not depreciated.
There are €4.8 million of fixtures, fittings and equipment which have been depreciated in full but are still in use at 31 December 2020.
Additions to assets under construction during the year ended 31 December 2020 include the following:
Development expenditure transferred from assets under construction to land and buildings and fixtures, fittings and equipment of €7.5 million primarily relate to the completion of the conference centre at Clayton Hotel Cardiff Lane.
On 24 April 2020, the Group completed the sale and leaseback of the Clayton Hotel Charlemont for €64.2 million. The Group now operates this hotel under a lease with a term of 35 years. As part of the transaction, a further €0.8 million is receivable contingent on the addition of three bedrooms to the property and the cost of this development will be borne by the Group. It is anticipated the costs associated with these additional bedrooms will not exceed the €0.8 million with planning permission already secured for the project.
The sale results in the derecognition of the property asset with the previously recognised revaluation gains of €30.3 million in the revaluation reserve being transferred to retained earnings. Immediately prior to sale, the property was revalued by external valuers in accordance with the Royal Institution of Chartered Surveyors (RICS) Valuation Standards and the fair value restated accordingly. The valuation was based on the expected price that would be received to sell the asset outright in an orderly transaction between market participants at that date on the assumption that all future economic benefits for the asset are disposed of.
In a sale and subsequent leaseback, the vendor retains the economic benefit post rent of the asset for the period of the lease. Upon sale, the asset is derecognised entirely and, following the leaseback, under IFRS 16, is replaced with a right-of-use asset which corresponds to the value of the discounted lease liability and a portion of the difference between the fair value prior to sale and the sales proceeds received. The right of-use asset does not consequently recognise a significant element of the benefits which the Group continues to enjoy which was recognised in the fair value of the asset prior to sale and leaseback.
Consequently, this results in a portion of the €7.7 million difference between the fair value prior to sale and the sales proceeds being treated as an accounting loss (€1.7 million) recognised in profit or loss and €6.0 million being capitalised as part of the right-of-use asset.
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.
At 31 December 2020, properties included within land and buildings with a carrying amount of €1,034.9 million (2019: €1,101.8 million) were pledged as security for loans and borrowings.
Material valuation uncertainty basis The value of the Group's property at 31 December 2020 reflects open market valuations carried out as at 31 December 2020 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 Royal Institution of Chartered Surveyors (RICS) Valuation Standards. As a result of Covid-19, similar to other real estate markets, the market for hotel assets has experienced significantly lower levels of transactional activity and liquidity. Consequently, the valuations have been reported on the basis of 'material valuation uncertainty', as set out in VPS 3 and VPGA 10 of the RICS Valuation Global Standards, in light of the increased uncertainty as less weight can be attached to previous market evidence for comparative purposes, to fully inform opinions of value. As a result, the valuers have indicated that less certainty and a higher degree of caution should be attached to their valuations than would normally be the case. For the avoidance of doubt, the inclusion of the 'material valuation uncertainty' declaration does not mean that the valuations cannot be relied upon and does not invalidate the valuations. Rather, the declaration has been included to ensure transparency of the fact that in the current extraordinary circumstances less certainty can be attached to the valuations than would otherwise be the case.
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 2020, 29 properties were revalued by independent external valuers engaged by the Group (31 December 2019: 30).
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 cash flow 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 the profile of 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 final valuation also includes a deduction of full purchaser's costs based on the valuers' estimates at 9.92% for assets located in the Republic of Ireland (31 December 2019: 9.96%) and 6.8% for assets located in the UK (31 December 2019: 6.8%).
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 (value of hotel divided by room numbers) in recent hotel 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 in the context of the overall valuation.
The significant unobservable inputs and drivers thereof are summarised in the following table:
*Price per key represents the valuation of a hotel divided by the number of rooms in that hotel.
The significant unobservable inputs are:
The estimated fair value under this valuation model would increase or decrease if:
Valuations also had regard to relevant price per key metrics from hotel sales activity.
Transition to IFRS 16 Leases IFRS 16 Leases was effective for the first time in the financial year commencing 1 January 2019. IFRS 16 replaces IAS 17 Leases, IFRIC 4 Determining Whether an Arrangement Contains a Lease, SIC-15 Operating Leases - Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.
The Group applied IFRS 16 using the modified retrospective method. Lease liabilities were measured at the present value of the remaining lease payments, discounted at the Group's incremental borrowing rates as at 1 January 2019. Right-of-use assets were measured at an amount equal to the lease liabilities adjusted by the amounts of any lease prepayments and accruals and reclassifications from intangible assets, where applicable. The weighted-average incremental borrowing rate applied on transition was 6.03% (Republic of Ireland: 5.86% and UK 6.49%) On transition to IFRS 16, the Group elected to apply the practical expedient to grandfather the assessment of which transactions are leases and applied IFRS 16 only to contracts that were previously identified as leases. Contracts that were not identified as leases under IAS 17 and IFRIC 4 were not reassessed for whether there is a lease. Therefore, the definition of a lease under IFRS 16 was applied only to contracts entered into or changed on/or after 1 January 2019. The Group used the following practical expedients when applying IFRS 16 to leases previously classified as operating leases under IAS 17:
The Group has elected not to recognise right-of-use assets and lease liabilities for leases of low value equipment. The Group did not recognise any finance leases under IAS 17 prior to the date of initial application. Group as a lessee The Group leases assets including land and buildings, vehicles, machinery and IT equipment. Information about leases for which the Group is a lessee is presented below:
Right-of-use assets comprise leased assets that do not meet the definition of investment property.
*The split of lease liabilities between current liabilities and non-current liabilities at 1 January 2019 and 31 December 2019 has been reclassified on a basis consistent with the presentation applied at 31 December 2020, which reflects the timing of the future capital repayments of the lease liabilities.
The remeasurement of lease liabilities relates to the reassessment of lease liabilities following agreed rent reductions as direct consequences of temporary hotel closures during the Covid-19 pandemic.
The split of lease liabilities between current liabilities and non-current liabilities at 1 January 2019 and 31 December 2019 has been reclassified on a basis consistent with the presentation applied at 31 December 2020, which reflects the timing of the future capital repayments of the lease liabilities. The current portion of the lease liabilities reflect lease cashflows offset by interest charges over a 12 month period from the reporting date. The adjustment represents the forecasted interest charge for the year ended 31 December 2020, as taken from the 2019 financial statements, that had not previously been offset against the lease cashflows for the same period.
Additions in 2020 relate to the Group entering into a 35 year lease in April 2020 of the Clayton Hotel Charlemont in Dublin following a sale and leaseback transaction which resulted in a right-of-use asset and lease liability of €56.3 million and €46.6 million respectively. The Group included €3.6 million of lease prepayments and initial direct costs in the initial measurement of the right-of-use asset. In addition, as a result of the sale and subsequent leaseback, the Group retained the economic benefit post rent of the asset for the period of the lease. This resulted in a portion of the €7.7 million difference between the fair value prior to sale and the sale proceeds being capitalised as part of the right-of-use asset (€6.0 million) in accordance with IFRS 16. In November 2020, the Group entered into a lease agreement to lease 44 newly built rooms at Clayton Hotel Birmingham for 32 years. This resulted in a right-of-use asset of €5.4 million (£4.8 million), which includes €0.1 million of initial direct costs and a lease liability of €5.3 million (£4.7 million). In 2019, additions principally relate to the Group entering into a 30 year lease in November 2019 of the Tamburlaine Hotel in Cambridge, England which resulted in a right-of-use asset and a lease liability of €45.5 million (£38.9 million) and €42.4 million (£36.3 million) respectively. The Group included €3.1 million (£2.6 million) of lease prepayments and initial direct costs in the measurement of the right-of-use asset. Variable lease costs which are linked to an index, rate or are considered fixed payments in substance are included in the measurement of lease liabilities. These represent €33.9 million of lease liabilities at 31 December 2020 (31 December 2019: €29.9 million).
Non-cancellable undiscounted lease cash flows payable under lease contracts are set out below:
Sterling amounts have been converted using the closing foreign exchange rate of 0.89903 as at 31 December 2020 (0.8508 as at 31 December 2019).
The weighted average lease life of future minimum rentals payable under leases is 29.4 years (31 December 2019: 29.4 years). Lease liabilities are monitored within the Group's treasury function.
For the year ended 31 December 2020, the total fixed cash outflows amounted to €28.0 million for land and building leases and €0.3 million for leases of fixtures, fittings and equipment.
Unwind of right-of-use assets and release of interest charge The unwinding of the right-of-use assets as at 31 December 2020 and the release of the interest on the lease liabilities as at 31 December 2020 through profit or loss over the terms of the leases have been disclosed in the following table:
Sterling amounts have been converted using the closing foreign exchange rate of 0.89903 as at 31 December 2020. The actual depreciation and interest charge through profit or loss will depend on the composition of the Group's lease portfolio in future years and is subject to change, driven by:
As a result of the impact of Covid-19, impairment tests were carried out on the Group's CGUs at 31 December 2020 (note 7). Each hotel operating business is deemed to be a CGU as the cash flows generated are independent of other hotels in the Group. As a result of the impairment tests, right-of-use assets were impaired by €7.5 million at 31 December 2020 (31 December 2019: €nil). €4.3 million related to right-of-use assets in Ireland and €3.2 million (£2.9 million) related to right-of-use assets in the UK.
Leases of land and buildings The Group leases land and buildings for its hotel operations and office space. The leases of hotels typically run for a period of between 25 and 35 years and leases of office space for 10 years.
Some leases provide for additional rent payments that are based on a percentage of the revenue/EBITDAR that the Group generates at the hotel in the period. The Group sub-leases part of one of its properties to a tenant under an operating lease.
Variable lease costs based on revenue/EBITDAR These variable lease costs link rental payments to hotel cash flows and reduce fixed payments. Variable lease costs which are considered fixed in substance are included as part of lease liabilities and not in the following table.
Variable lease costs based on revenue/EBITDAR for the year ended 31 December 2020 are as follows:
Variable lease costs based on revenue/EBITDAR for the year ended 31 December 2019 are as follows:
Extension options and termination options The Group, as a hotel lessee, does not have any extension options. The Group holds a single termination option in an office space lease. The Group assesses at lease commencement whether it is reasonably certain not to terminate the option and reassesses if there is a significant event or change in circumstances within its control. The relative magnitude of optional lease payments to lease payments is as follows:
Leases not yet commenced to which the lessee is committed The Group has multiple agreements for lease at 31 December 2020 and details of the non-cancellable lease rentals and other contractual obligations payable under these agreements are set out hereafter. These represent the minimum future lease payments (undiscounted) in aggregate that the Group is required to make under the agreements. An agreement for lease is a binding agreement between external third parties and the Group to enter into a lease at a future date. The dates of commencement of these leases may change based on the hotel opening dates. The amounts payable may also change slightly if there are any changes in room numbers delivered through construction.
The significant movement since the year ended 31 December 2019 is due principally to the following:
Also, included in the above table are future lease payments for agreements for lease, with a lease term of 35 years, for Clayton Hotel Manchester City, Maldron Hotel Glasgow, Clayton Hotel Glasgow, Clayton Hotel Bristol, Maldron Hotel Birmingham, Maldron Hotel Manchester, Maldron Hotel Liverpool, The Samuel Dublin and Maldron Hotel Croke Park, Dublin.
Leases of fixtures, fittings and equipment The Group leases a small number of vehicles, IT equipment and hotel equipment with lease terms of up to five years. The Group has applied the short-term and low value exemptions available under IFRS 16 where applicable and recognises lease payments associated with short-term leases or leases for which the underlying asset is of low value as an expense on a straight-line basis over the lease term. Where the exemptions were not available, right-of-use assets have been recognised with corresponding lease liabilities.
Group as a lessor Lease income from lease contracts in which the Group acts as lessor is outlined below:
The Group leases its investment property and has classified these leases as operating leases because they do not transfer substantially all of the risks and rewards incidental to ownership of these assets to the lessee. Operating lease income from sub-leasing right-of-use assets for the year ended 31 December 2020 amounted to €0.1 million (31 December 2019: €0.1 million).
The following table sets out a maturity analysis of lease payments, showing the undiscounted lease payments receivable:
Contract fulfilment costs, within non-current assets, relate to the Group's contractual agreement with Irish Residential Properties REIT plc ("IRES"), entered into on 16 November 2018, for IRES to purchase a residential development the Group is developing (comprising 69 residential units) on the site of the former Tara Towers hotel.
Revenue and the associated cost will be recognised on this contract in profit or loss when the performance obligation in the contract has been met. Based on the terms of the contract, this will be on legal completion of the contract which will occur on practical completion of the development project which is expected to be in 2022. As a result, revenue will be recognised at a point in time in the future when the performance obligation is met, rather than over time.
Costs incurred in fulfilling the contract during the year of €8.7 million (2019: €4.1 million) relate directly to this contractual arrangement with IRES and are included within non-current assets at 31 December 2020. These costs, primarily build costs, have enhanced the asset which will be used for the residential development, have been used in order to satisfy the contract and are expected to be recovered.
Interest capitalised on loans and borrowings relating to this development (qualifying asset) was €0.3 million during the year ended 31 December 2020 (2019: €0.1 million) (note 4).
The overall sale value of the transaction is expected to be up to €42.4 million (excluding VAT). The overall value of the transaction will vary depending on how Part V obligations (Social and Affordable housing allocation) are settled with Dublin City Council.
Contract fulfilment costs paid have been included in investing activities in the consolidated statement of cash flows as they are not primarily derived from the principal revenue-producing activities of the Group.
On 26 October 2018, the Group successfully completed the refinancing of its previous debt facility with a banking club of six lenders. A new €525 million five year multicurrency facility was entered into consisting of a €200 million term loan facility and a €325 million revolving credit facility, with a maturity date of 26 October 2023. On 19 August 2019, the Group availed of its option to extend the €525 million multicurrency facility for an additional year to 26 October 2024.
On 20 March 2020, the Group agreed an amendment to its facility agreement with its banking club to provide additional headroom on its covenants for the two covenant reporting periods at 30 June 2020 and 31 December 2020 as a result of the impact of Covid-19.
On 9 July 2020, the Group entered into an amended and restated facility agreement with its banking club to provide additional flexibility and liquidity to support the Group following the impact of Covid-19. The Group raised an additional €39.4 million in revolving credit facilities with a maturity date of 30 September 2022 and the maturity of €20.1 million of revolving credit facilities was shortened to 30 September 2022 from 26 October 2024. The Group also agreed a new temporary suite of covenants with its banking club. The revised covenants include Net Debt to Value covenants and a minimum liquidity restriction whereby either cash, remaining available facilities or a combination of both must not fall below €50 million at any point to 30 March 2022. The revised covenants were put in place to avoid potential breaches in covenants based on trailing twelve month EBITDA during the period of recovery in trading profits following the impact of Covid-19. The Group will revert to the previous covenants comprising Net Debt to EBITDA and Interest Cover for testing at 30 June 2022. The Group is in compliance with its covenants as at 31 December 2020.
In line with IFRS 9 derecognition criteria, the Group assessed whether the terms and cash flows of the modified liabilities were substantially different as a result of this amended facility agreement. The Group performed the 10% test to assess whether the discounted present value of the cash flows under the new terms, discounted using the original effective interest rate, including any fees paid net of any fees received, was at least 10 percent different from the discounted present value of the remaining cash flows of the original financial liability. The Group also performed a qualitative assessment by comparing the amended terms with the original terms of the facility agreement, considering items such as changes to type of interest rate (fixed or variable), currency and covenants. The changes were not deemed to be substantial. As a result, the loans were deemed to be non-substantially modified which required the amortised cost of the loans to be remeasured at the date of modification and led to a modification loss of €4.3 million being immediately recognised in profit or loss in 2020 (note 4). Costs of €0.6 million incurred in relation to the amendment were capitalised and are amortised to profit or loss on an effective interest rate basis over the term of the loan facility. As at 31 December 2020, the drawn loan facility is €313.8 million consisting of Sterling term borrowings of £176.5 million (€196.3 million) and revolving credit facility borrowings of €117.5 million - €14.0 million in Euro and £93.0 million (€103.5 million) in Sterling. The undrawn loan facilities as at 31 December 2020 were €247.9 million (2019: €121.2 million).
The loans bear interest at variable rates based on 3 month or 6 month Euribor/LIBOR plus applicable margins. The Group 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 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.
Net debt is calculated in line with banking covenants and includes external loans and borrowings drawn and owed to the banking club as at 31 December 2020 (rather than the amortised cost of the loans and borrowings) less cash and cash equivalents. The below table also includes a reconciliation to net debt and lease liabilities. Interest rate swaps of €9.0 million are not included in the below tables.
Net debt is calculated in line with banking covenants and includes external loans and borrowings drawn and owed to the banking club as at 31 December 2019 (rather than the amortised cost of the loans and borrowings) less cash and cash equivalents. The below table also includes a reconciliation to net debt and lease liabilities. Interest rate swaps of €4.5 million are not included in the below tables.
There were no subsequent events which would require an adjustment or a disclosure thereon in these condensed consolidated financial statements.
Basic earnings per share is computed by dividing the loss/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 available to ordinary shareholders 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 loss/earnings per share for the years ended 31 December 2020 and 31 December 2019.
There is no difference between basic and diluted loss per share for the year ended 31 December 2020. Potential ordinary shares are only treated as dilutive if their dilution results in a decreased earnings per share or increased loss per share. There have been no adjustments made to the number of weighted average shares outstanding in calculating adjusted basic or adjusted diluted earnings per share in 2020.
Adjusted earnings per share (basic and diluted) is presented as an alternative performance measure to show the underlying performance of the Group excluding the tax adjusted effects of items considered by management to not reflect normal trading activities or distort comparability either year on year or with other similar businesses (note 2).
This announcement including the condensed consolidated financial statements was approved by the Directors on 1 March 2021.
Supplementary Financial Information
Alternative Performance Measures ("APM") and other definitions The Group reports certain alternative performance measures ('APMs') that are not defined under International Financial Reporting Standards ('IFRS'), which is the framework under which the condensed consolidated financial statements are prepared. These are sometimes referred to as 'non-GAAP' measures. The Group believes that reporting these APMs provides useful supplemental information which, when viewed in conjunction with the IFRS financial information, provides stakeholders with a more comprehensive understanding of the underlying financial and operating performance of the Group and its operating segments. These APMs are primarily used for the following purposes:
The APMs can have limitations as analytical tools and should not be considered in isolation or as a substitute for an analysis of the results in the condensed consolidated financial statements which are prepared under IFRS. These performance measures may not be calculated uniformly by all companies and therefore may not be directly comparable with similarly titled measures and disclosures of other companies. The definitions of and reconciliations for certain APMs are contained within the condensed consolidated financial statements. A summary definition of these APMs together with the reference to the relevant note in the condensed consolidated financial statements where they are reconciled is included below. Also included below is information pertaining to certain APMs which are not mentioned within the condensed consolidated financial statements but which are referred to in other sections of this report. This information includes a definition of the APM, in addition to a reconciliation of the APM to the most directly reconcilable line item presented in the condensed consolidated financial statements. References to the condensed consolidated financial statements are included as applicable.
Adjusted EBITDA is an APM representing earnings before interest on lease liabilities, other interest and finance costs, depreciation of property, plant and equipment and right-of-use assets, amortisation of intangible assets and tax, adjusted to show the underlying operating performance of the Group and excludes items which are not reflective of normal trading activities or distort comparability either year on year or with other similar businesses. Reconciliation: Note 2
EBITDA is an APM representing earnings before interest on lease liabilities, other interest and finance costs, depreciation of property, plant and equipment and right-of-use assets, amortisation of intangible assets and tax. Reconciliation: Note 2
Segments EBITDA represents 'Adjusted EBITDA' before central costs, share-based payments expense and other income for each of the reportable segments: Dublin, Regional Ireland and the UK. It is presented to show the net operational contribution of leased and owned hotels in each geographical location. Reconciliation: Note 2
EBITDAR is an APM representing earnings before lease costs, interest on lease liabilities, other interest and finance costs, depreciation of property, plant and equipment and right-of-use assets, amortisation of intangible assets and tax. Reconciliation: Note 2
Segments EBITDAR represents Segments EBITDA before lease costs for each of the reportable segments: Dublin, Regional Ireland and the UK. Reconciliation: Note 2
Segments EBITDAR margin represents 'Segments EBITDAR' as a percentage of the total revenue for the following Group segments: Dublin, Regional Ireland and the UK. Also referred to as Hotel EBITDAR margin.
Adjusted Basic EPS is presented as an alternative performance measure to show the underlying performance of the Group excluding the effects of items considered by management to not reflect normal trading activities or distort comparability either year on year or with other similar businesses. Reconciliation: Note 14
The Group's tax credit/(charge) for the year divided by the (loss)/profit before tax presented in the condensed consolidated statement of profit or loss and other comprehensive income.
Available funds comprises cash and cash equivalents of €50.2 million (2019: €40.6 million) and the undrawn revolving credit facilities of €247.9 million (2019: €121.2 million) at year end which are available for use after taking account of the €50 minimum liquidity restriction when it is in effect.
Net Debt represents drawn amounts of loans and borrowings less cash and cash equivalents at year end. Reconciliation: Note 12
Net Debt (see definition viii) and Lease Liabilities at year end. Reconciliation: Note 12
Net Debt (see definition viii) divided by the 'Adjusted EBITDA' after deducting fixed lease costs for the year. This APM is presented to show the Group's financial leverage before the application of IFRS 16 Leases. Reconciliation: Refer below
Net Debt (see definition viii) and Lease Liabilities divided by the 'Adjusted EBITDA' for the year. This APM is presented to show the Group's financial leverage after including the accounting estimate of lease liabilities following the application of IFRS 16. Reconciliation: Refer below
Net Debt divided by the valuation of property assets as provided by external valuers at year end. This APM is presented to show the gearing level of the Group under banking covenants. Reconciliation: Refer below
Net cash from operating activities less amounts paid for interest, finance costs, refurbishment capital expenditure, fixed lease payments and after adding back cash paid in respect of adjusting items to EBITDA. Following the adoption of IFRS 16, fixed lease payments comprises the repayment of lease liabilities and interest paid on lease liabilities in the condensed consolidated statement of cash flows.
In 2020, the deferral of VAT and payroll tax liabilities under government Covid-19 support initiatives permitting the warehousing of tax liabilities in Ireland and the UK resulted in liabilities of €13.5 million at year end and are expected to be paid during 2021. This non-recurring initiative was introduced by government Covid-19 support schemes. It allows the temporary retention of an element of taxes collected during 2020 on behalf of tax authorities. To remove the effect of this distortion on cash flows from trading, the impact of these deferrals have been excluded in the calculation of Free Cash Flow.
This APM is presented to show the cash generated to fund acquisitions, development expenditure, repayment of debt and dividends. Reconciliation: Refer below
Free Cash Flow before payment of lease costs, interest and finance costs divided by the total amount paid for lease costs, interest and finance costs. Debt and Lease Service Cover is presented to show the Group's ability to meet its debt and lease commitments. Reconciliation: Refer below
In prior years, the Group has presented this APM to provide stakeholders with a more meaningful understanding of the underlying financial and operating performance of the Group. Due to the significant impact of Covid-19 on the Group's financial performance, the return is negative for 2020 as the Group incurred losses in the current year (2019: 12.1%). As a result, this APM is no longer disclosed here.
Excluding IFRS 16 numbers Due to the significant impact from the adoption of IFRS 16 on the condensed consolidated financial statements, the Group has included additional APMs that will provide the reader with more information to assist in interpreting the underlying operating performance of the Group. In particular, the Group refers to the following APMs to enable comparison between years following the adoption of IFRS 16.
Earnings before adjusting items, interest and finance costs, tax, depreciation, amortisation of intangible assets as defined above and restated to remove the impact of adopting IFRS 16, replacing IFRS 16 right-of-use asset depreciation and lease liability interest with lease costs as calculated under IAS 17. Reconciliation: Refer below
(Loss)/earnings before interest and finance costs, tax and restated to remove the impact of adopting IFRS 16, by excluding IFRS 16 right-of-use asset depreciation, impairment of right-of-use assets, impairment of fixtures, fittings and equipment and including the lease costs and additional loss on sale and leaseback as calculated under IAS 17. The Group disclose this APM to show the earnings generated by the Group before the application of IFRS 16. Reconciliation: Refer below
EBIT excluding IFRS 16 as defined in (xvii) above before adjusting items. The Group disclose this APM to show the earnings generated by the Group before the application of IFRS 16 and excludes items which are not reflective of normal trading activities or distort comparability either year on year or with other similar businesses. Reconciliation: Refer below
(Loss)/profit for the year restated to remove the impact of adopting IFRS 16, including replacing IFRS 16 right-of-use asset depreciation, lease liability interest, impairment of right-of-use assets and impairment of fixtures, fittings with the lease costs and the additional loss on sale and leaseback as calculated under IAS 17. Reconciliation: Refer below
Basic (loss)/earnings per share restated to remove the impact of adopting IFRS 16, including replacing IFRS 16 right of-use-asset depreciation, lease liability interest, impairment of right-of-use assets and impairment of fixtures, fittings with the lease costs and the additional loss on sale and leaseback as calculated under IAS 17. Reconciliation: Refer below
Diluted (loss)/earnings per share restated to remove the impact of adopting IFRS 16, including replacing IFRS 16 right-of-use asset depreciation, lease liability interest and impairment of right-of-use assets and fixtures, fittings and equipment with the lease costs and the additional loss on sale and leaseback as calculated under IAS 17. Reconciliation: Refer below
Basic (loss)/earnings per share before adjusting items and restated to remove the impact of adopting IFRS 16, including replacing IFRS 16 right-of-use asset depreciation and lease liability interest with lease costs under IAS 17. Reconciliation: Refer below
Diluted (loss)/earnings per share before adjusting items and restated to remove the impact of adopting IFRS 16, including replacing IFRS 16 right-of-use asset depreciation and lease liability interest with lease costs under IAS 17. Reconciliation: Refer below Calculation of APMs excluding IFRS 16 - definitions (xvi), (xvii), (xviii), (xix), (xx), (xxi), (xxii), (xxiii)
1 Right-of-use assets are not recognised under the previous accounting standard, IAS 17 Leases. Therefore, there would have been no impairment of right-of-use assets. As the impairment of fixtures, fittings and equipment related to the impairment of right-of-use assets, this impairment is excluded also. 2 The accounting for the loss on the sale and leaseback of Clayton Hotel Charlemont differs under IFRS 16 compared to the previous accounting standard, IAS 17. Under IFRS 16, the property is derecognised upon sale of the asset and replaced with a right-of-use asset following the leaseback. A portion of the €7.7 million difference between the fair value prior to sale and the sales proceeds was capitalised as part of the right-of-use asset, with the remaining balance recorded in profit or loss. Under the previous accounting standard, the entire difference must be recorded immediately as a loss in profit or loss. Calculation of Net Debt APMs - definitions (xvi), (x), (xi), (xii)
1 Net Debt to Adjusted EBITDA excluding IFRS 16 is not applicable in 2020 as Adjusted EBITDA was negative. Calculation of Free Cash Flow - definition (xiii)
2 In 2020, the Group deferred VAT and payroll taxes under government support schemes resulting in liabilities of €13.5 million at year end that are expected to be paid during 2021. This non-recurring initiative was introduced by government Covid-19 support schemes. It allows the temporary retention of an element of taxes collected during 2020 on behalf of tax authorities. To remove the effect of this distortion on cash flows from trading, the impact of these deferrals have been excluded in the calculation of Free Cash Flow. Calculation of Debt and Lease Service Cover - definition (xiv)
3 Total lease costs paid relates to payments of fixed and variable lease costs during the year in accordance with the lease agreements if they relate to the year.
Glossary 1. Revenue per available room (RevPAR) Revenue per available room is calculated as total rooms revenue divided by the number of available rooms, which is also equivalent to the occupancy rate multiplied by the average daily room rate achieved. 2. 'Like for like' RevPAR 'Like for Like' RevPAR includes a full year performance of all hotels regardless of when acquired except for Dublin which excludes the Ballsbridge Hotel as the hotel effectively did not trade for most of 2020. 3. ARR Average Room Rate (also ADR - Average Daily Rate) 4. Hotel assets Hotel assets represents the value of property, plant and equipment per the condensed consolidated statement of financial position at 31 December 2020. 5. Refurbishment capital expenditure The Group typically allocates approximately 4% of annual revenue to refurbishment capital expenditure to ensure the portfolio remains fresh for its customers and adheres to brand standards. Due to the sudden onset of the Covid-19 pandemic from March 2020, at which point spend had already been contracted, this ratio did not apply for 2020.
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| ISIN: | IE00BJMZDW83, IE00BJMZDW83 |
| Category Code: | FR |
| TIDM: | DAL,DHG |
| LEI Code: | 635400L2CWET7ONOBJ04 |
| OAM Categories: | 1.1. Annual financial and audit reports |
| Sequence No.: | 94579 |
| EQS News ID: | 1172228 |
| End of Announcement | EQS News Service |
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