Easyhotel : Interim Results 2016

Interim Report 2005-6

24 May 2016

easyHotel plc

Interim results for the six months ended 31 March 2016 Revenue up 11.6% 10.9% growth in adjusted EBITDA

easyHotel plc ("easyHotel" or the "Company") (AIM:EZH), the owner, developer, operator and franchisor of "super budget" branded hotels, today announces its interim results for the six months ended 31 March 2016.

Financial highlights

• Total system sales1,2 up 10.4% to £9.66m (31 March 2015: £8.75m)

• Total revenue2 was up 11.6% to £2.59m (31 March 2015: £2.32m), slightly ahead of Board expectations

• Like-for-like revenue for owned hotels increased by 8.0%

• Adjusted EBITDA3 up 10.9% to £0.58m (31 March 2015: £0.52m)

• Profit before tax was £0.14m (31 March 2015: £0.37m), reflecting increased pre-opening costs (associated with the increased development pipeline), depreciation and amortisation and share based payments

• Interim dividend of 0.11p per share (31 March 2015: nil)

  Business highlights

• Five owned hotel projects in progress with £4.59m of investment made during the period:

  • Construction commenced on sites in Liverpool and Manchester

  • Planning permission granted in Birmingham with completion expected in a few weeks' time

  • Planning permission submitted for new hotels in Barcelona and Ipswich

• Three new franchise hotels under construction in Brussels, Amsterdam and Bur Dubai (first hotel to be developed under Master Development Partnership signed with MAN Investments LLC to develop easyHotels in the UAE and Oman)

Commenting on the results, Guy Parsons, Chief Executive Officer, said:

"Trading in the first half of financial year 2015/16 was slightly ahead of the Board's expectations as owned hotels started to benefit from the new revenue management strategy. This momentum has continued into the beginning of the second half, traditionally the busiest trading months of the year for hoteliers, and full year trading is on track to meet the Board's expectations.

The Board remains focused on operational efficiency whilst ensuring the Company has the right infrastructure and resources in place to execute the growth strategy. The Company's committed owned and franchise pipeline is currently expected to add more than 1,000 rooms to the network over the next two years.

With more opportunities, both owned and franchise, available than had been expected the Board is considering its funding options to take full advantage of these opportunities. The Board remains confident that it can secure properties in major and regional UK cities as well as key European gateway cities whilst leveraging the strong brand to increase easyHotel's presence in the growing branded super budget hotel segment."

Explanatory footnotes:

1 Total system sales is the full amount that the customer pays for owned and franchised hotels, including initial sign-on fees paid by franchisees to the Company

2 2015 amounts exclude the £0.27m termination fee of a South African franchisee agreement

3 Adjusted EBITDA represents Earnings before Interest, Taxation, Depreciation and Amortisation, adjusted for pre-opening costs related to the development of hotels, organisational restructuring costs, share based payments and other non-recurring items

Enquiries:

easyHotel plc	www.easyhotel.com
Guy Parsons, Chief Executive Officer
Marc Vieilledent, Chief Financial Officer	http://ir.easyhotel.com
Investec (Nominated Adviser and Broker)	+44 (0) 20 7597 4000
Chris Treneman / David Anderson
Hudson Sandler (Financial PR)	+44 (0) 20 7796 4133
Wendy Baker / Emily Dillon

Notes to Editors:

easyHotel is the owner, developer, operator and franchisor of branded hotels. Its strategy is to target the "super budget" segment of the hotel industry by marketing "clean, comfortable and safe" hotel rooms to its customers. Website: www.easyHotel.com

Operating hotels

easyHotel's owned hotels currently comprise 390 rooms, and it has a further 18 franchised hotels with 1,490 rooms.

Owned hotels:

Old Street (London), Glasgow, Croydon.

Franchise locations:

Bulgaria (Sofia), Czech Republic (Prague), Germany (Berlin, Frankfurt), Hungary (Budapest), The Netherlands (Amsterdam, Rotterdam, The Hague), Switzerland (Basel, Zurich), UAE (Dubai), UK (Edinburgh, London Central & Heathrow and Luton).

Hotel development pipeline

The Company's development pipeline of owned and franchised hotels currently consists of:

Owned hotels:

Liverpool (UK), Manchester (UK), Birmingham (UK)

Subject to planning permission: Barcelona (Spain), Ipswich (UK)

Franchise hotels:

Amsterdam (The Netherlands), Brussels (Belgium), Dubai (UAE)

Overview

Trading for the first six months ended 31 March 2016 was slightly ahead of the Board's expectations, primarily driven by a strong trading performance at the Company's owned hotels (which benefited from the new revenue management strategy announced in December 2015). Intensified efforts to identify suitable acquisition targets for owned hotel developments has resulted in an increased hotel development pipeline. In addition, the Company signed a new Master Development Partnership in the Middle East and has strengthened its relationships with existing and potential franchisees. The owned and franchise development pipeline is expected to add more than 1,000 rooms to the network over the next two years.

Strategy

easyHotel's principal growth strategy is to exploit fully the strength of its brand and significantly extend its presence in the growing branded super budget hotel segment through the roll-out of owned hotel developments alongside a targeted expansion of its franchise partnerships.

The owned hotel strategy is focused on developing hotels with approximately 100 rooms through the conversion of existing properties, new builds and the acquisition of going concerns which meet the Company's target of 15% unlevered return on capital employed at maturity. In addition, the Board will assess sites with returns below 15% in locations which offer superior risk adjusted returns over the longer term. The average timeframe from site identification to opening of an easyHotel is approximately two years, including purchase and conversion. It is expected that new hotels will reach maturity in the second full year of operation.

The Board believes there is long term potential for over 12,000 owned hotel rooms in the UK and Europe, of which over 8,000 would be in UK cities and over 4,000 in key gateway European cities. In addition, the franchise model offers the potential for over 15,000 franchised rooms, of which 4,000 would be in the UK and 11,000 in Europe and the Middle East, where sufficient demand exists in locations unsuitable for an owned hotel or where a franchise hotel can operate alongside an owned site and further build brand awareness. Outside Europe, the Company's medium term franchise growth will be focused on developing its presence in the Middle East, as demonstrated by our recent Master Development Partnership with MAN Investments.

Financial Performance

Overall trading for the first six months to 31 March 2016 was slightly ahead of the Board's expectations.

Revenue

Total revenue was up 11.6% to £2.59m (31 March 2015: £2.32m) excluding the South African franchise agreement termination fee of £0.27m recognised in 2015. Including the South African franchise agreement termination fee recorded in the first half of 2015, total revenue was flat at £2.59m (31 March 2015: £2.59m).

Owned hotel revenue increased 18.6% during the period to £2.02m (31 March 2015: £1.71m), reflecting a full six months' trading at Croydon and strong performances from Glasgow and Old Street, London.

Like-for-like owned hotel revenue was up 8.0%, (outperforming the competitive set (source: STR Global)) as the Company started to see early benefits from the new revenue strategy announced in December 2015.

Like-for-like franchise revenue increased by 1.1%. Total franchise revenue decreased by 35.9%, to

£0.57m (31 March 2015: £0.88m), primarily as a result of the 2015 South African franchise agreement termination fee (31 March 2015: £0.27m).

Adjusted EBITDA and profit before tax

Adjusted EBITDA was up 10.9% at £0.58m (31 March 2015: £0.52m), reflecting strong trading particularly at the Company's three owned hotels. The Company uses adjusted Earnings before Interest, Taxation, Depreciation and Amortisation (EBITDA), adjusted for pre-opening costs related to the development of hotels (31 March 2016: £0.05m, 31 March 2015: nil), organisational restructuring costs, share based payments (31 March 2016: £0.12m, 31 March 2015: £0.00m) and other non- recurring items as the Board believes this Adjusted EBITDA measure more accurately reflects the key drivers of profitability for the group and removes those items which do not impact underlying trading performance.

In line with the Board's expectations, administrative expenses before depreciation and amortisation, pre-opening costs and share based payments increased to £1.10m (31 March 2015: £0.97m). The Company continues to maintain a tight control of costs and is committed to improving its operational efficiency, whilst ensuring it has the appropriate infrastructure and skilled resources in place to execute the Company's growth strategy.

Depreciation and amortisation costs increased to £0.22m (31 March 2015: £0.18m) reflecting the opening of the Company's owned hotel in Croydon.

Net finance expense was £0.03m (31 March 2015: £0.24m, including £0.21m unrealised loss on amounts due from Benelux franchisee).

Owned hotel profit before tax increased 20.8% to £0.81m (31 March 2015: £0.67m). easyHotel Croydon has performed well and in line with the Board's expectations since it opened in late 2014.

Franchised hotel profit before tax was £0.32m (31 March 2015: £0.45m). This reduction was primarily due to increased marketing expenditure and expenses related to new franchise hotels under development incurred ahead of the hotels opening, the 2015 South African franchise agreement termination fee (31 March 2015: £0.27m) and the 2015 unrealised loss on amounts due from Benelux franchisee (31 March 2015: £0.21m).

Adjusted profit before tax stated before pre-opening costs, share based payments, the 2015 South African franchise agreement termination fee and the 2015 unrealised loss on amounts due from Benelux franchisee was up 5.9% to £0.32m (31 March 2015: £0.30m). Reported profit before tax was

£0.14m (31 March 2015: £0.37m).

Cash flows and Balance Sheet

During the first half of the year, cash and cash equivalents decreased to £17.61m (30 September 2015:

£22.64), primarily due to investment in the five new owned hotel development projects (£4.59m), payment of stamp duty related to Old Street (£0.42m) and dividend payment (£0.20m). As a consequence, total non-current assets increased to £25.42m (30 September 2015: £21.02m).