Easyhotel : Interim Results

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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.

Operating hotels

easyHotel's eleven owned hotels currently comprise 1,216 rooms, and it has a further 25 franchised hotels with 2,139 rooms.

Owned hotels:

United Kingdom: Old Street (London), Glasgow, Croydon, Birmingham, Manchester, Liverpool, Newcastle*, Leeds, Sheffield and Ipswich.

Spain: Barcelona

Franchise locations:

United Kingdom: Edinburgh, London Heathrow, Central London, Luton, Reading and Belfast.

Europe: Belgium (Brussels), Bulgaria (Sofia), Germany (Berlin, Frankfurt, Bernkastel-Kues), Hungary (Budapest), The

Netherlands (Amsterdam: City, Arena & Zaandam, Ro erdam, The Hague, The Hague Scheveningen Beach, Maastricht), Portugal (Lisbon), Switzerland (Basel, Zurich).

International: UAE (Dubai).

Hotel development pipeline

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

Owned hotels:

United Kingdom: Milton Keynes, Chester, Cardiff, Oxford*, Blackpool. Subject to planning consent: Cambridge* and Bristol.

Europe: Subject to planning consent: Ireland (Dublin), France (Paris-Charles de Gaulle Airport*).

Franchise hotels:

Europe: Spain (Malaga), Switzerland (Zurich, Basel), Netherlands (Amsterdam Schiphol Airport).

International: Iran, Sri Lanka, Turkey (Istanbul), UAE (Dubai).

*Hotel s under a n opera ti ng l ea s e .

BUSINESS REVIEW

Trading Overview

The Group has con nued to outperform its hotel markets in the UK and across Europe during the period, despite a weakening trading environment.

Ongoing poli cal and economic uncertainty in the UK has con nued to dampen consumer sen ment over the last six months, resul ng in a so ening hotel market, where demand weakened quarter-on-quarter. RevPAR across the wider UK hotel market grew by just 0.4% during the period (STR MSE UK) with rela vely strong market demand in London off-set by a weakening regional market. Whilst European markets have generally outperformed the UK, overall demand across Europe has softened in 2019.

Against this backdrop, the strength of the easyHotel brand as a leader in super budget sleep segment, underpinned by our growing network of hotels in key interna onal tourist des na ons, drove a fourth year of market outperformance across the Group's owned hotels. This resulted in a strong performance across the pla orm, delivering a 25.3% growth in system sales to £20.2m (H1 2018: £16.1m).

On a like-for-like basis, owned hotel RevPAR for the period was up 10.1% increasing to £36.3 (H1 2018: £33.0).

Occupancy rates reduced to 82.1% (2018: 84.4%) reflecting the more challenging market but ADR increased by 13.1% to

£44.2 (2018: £39.1).

Like-for-like RevPAR from franchised hotels fell by 3.5% to £38.7 (2018: £40.0) with occupancy rates reducing to 77.9%

(2018: 80.5%) and ADR decreasing slightly to £49.64 (2018: £49.72). The Group's European franchised hotels performed less strongly than those in the UK, despite European hotel markets generally outperforming the UK. Trading was mixed on a country by country basis. Our Benelux franchise hotels underperformed the market, and this is expected to continue to year-end.

New Hotel Openings

During the period the Group expanded its por olio of super budget hotels across the UK and Europe. Openings included a new owned hotel in Ipswich (89-rooms) and two further franchised hotels in Lisbon (101-rooms) and Bernkastel-Kues(100-rooms), with all three hotels already trading in line with management's expectations.

Combined, these openings add a further 290 rooms to the network bringing the Group's total por olio at the period end to 1,216 owned hotel rooms and 2,139 franchised hotel rooms.

Development Pipeline

In line with its ambi ous growth strategy, easyHotel con nues to target carefully selected loca ons to expand its por olio of owned and franchised hotels. We believe the opportunity to develop our por olio in key European ci es is significant and the Group's newly established European development team has been focussed on pursuing opportuni es in these markets. For owned hotels, the Group believes there is poten al for approximately 12,000 easyHotel rooms primarily in the UK, France and Spain with an addi onal opportunity for approximately 15,000 franchised easyHotel rooms across the UK, Europe and the Middle East.

Owned Hotel Development

The Group con nued to expand its pipeline of owned hotels during the period. In the UK, this includes a 145- bedroom easyHotel Bristol development (subject to planning permission). In Europe, the Group is pleased to have secured its first hotel in France, the 209 room easyHotel at Paris-Charles de Gaulle Airport, for which a planning decision is expected shortly.

New hotels in Oxford (180 bedrooms) and Blackpool (104 rooms) both received planning permission during the period and are expected to open in the 2020/21 financial year. Other new owned hotel projects currently in development include Cardiff (120 rooms) which is due to open during the next financial year and Cambridge (100 rooms), Chester (109 rooms), and Dublin (130 rooms) which are anticipated to open in the Group's 2020/2021 financial year.

easyHotel Milton Keynes (124 bedrooms) and our refurbished Old Street hotel (89 rooms) are well advanced. Both hotels are expected to open in June 2019, earlier than originally expected.

The Group currently has a total of 1,221 owned hotel rooms in its development pipeline.

Old Street Offices

Our newly developed self-contained office accommoda on (15,500 sq. ) at our property at 80 Old Street, London

(3rd - 5th floors), has been pre-let to a single tenant. This is on a ten-year FRI (fully repairing and insuring) lease at an annual rent of £59.50 per sq. with an upward only rent review at year five. There is an ini al rent-free period . The new tenant, Knotel, is a global flexible office operator that currently manages approximately 3 million sq. of space across 200 locations spanning New York, San Francisco, Los Angeles, Sao Paolo, Berlin as well as London.

Franchised Hotel Development

Franchised hotel openings for the current financial year include Zurich (71 rooms, across two hotels) and Amsterdam Schiphol Airport (154 rooms) expected to open in the next financial year.

The Group currently has a total of 1,450 franchised hotel rooms in its committed pipeline.

STRATEGIC PROGRESS

The Group con nues to make good progress against its strategic priori es. The growing strength of the brand's simple "no frills" super budget offer is well aligned to the needs of today's discerning and value conscious traveller and the long-term structural growth drivers in the international branded budget hotel sector remain strong.

With the Group now in its fourth year of market out-performance, we con nue to drive improvements in our revenue management strategy in order to maximise sales. Over the period the Group has worked with its OTA partners to drive revenues in a so ening hotel market. Whilst the OTAs remain an important part of our strategy the Group is taking steps to strengthen its percentage of direct bookings through the roll out of a new PMS system in 2019 with planned enhancements to build direct revenue share. This will enable us to improve our customer booking experience even further and will be supported by investment in our CRM pla orm to drive improved returns from our more targeted marketing activity.

With a current por olio of 36 hotels across 30 ci es, the Board is focussed on the accelerated expansion of the easyHotel brand through both owned hotel and franchised hotel development, to take advantage of the significant opportunity across the UK, Continental Europe and Middle Eastern markets.

In the UK, where the Group already has significant established owned hotel presence and a strong commi ed pipeline to deliver seven further hotels by the 2021 financial year end, the Group intends to focus further owned hotel development on primary city targets, refocussing its wider UK expansion plans on franchised development.

In Con nental Europe, the Group's newly appointed European Development Team are pursuing a number of owned and franchised development opportuni es. The Group intends to expand its European owned hotel network in key primary and secondary tourist des na ons with a focus on France and Spain. The Group's strong balance sheet and cash generation underpins the funding for future owned hotel growth in these markets.

Further expansion across mainland Europe and the Middle East will be led through an increased focus on franchised development, enabling the Group to broaden its presence, without the need for direct capital investment.

FINANCIAL REVIEW

Revenue

Total Group revenue grew by 52.6% to £7.26m (H1 2018: £4.76m).

Owned hotel revenues, including other income, increased by 63.3% during the period to £6.46m (H1 2018: £3.96m),

reflec ng the contribu on from new hotel openings in 2018: Leeds (August), Sheffield (September) and Barcelona (September), and a new hotel in Ipswich in January 2019. These openings more than offset the impact from the full closure of Old Street in December 2018, that is planned to re-open in June 2019.

Owned hotel RevPAR was up 10.1% to £36.3 (H1 2018: £33.0) which outperformed the wider UK MSE sectorby 9.7% pts.

Total franchise revenue was broadly flat at £0.80m (H1 2018: £0.80m). Like-for-like franchise revenue decreased by 3.1% as a result of challenging trading condi ons in some loca ons. This was offset by the posi ve impact of new hotel openings in 2018: The Hague-Scheveningen (March), Maastricht (July), Belfast (August), Reading (September) and Lisbon (October) and Bernkastel-Kues (January 2019).

Adjusted EBITDA and Profit Before Tax

Adjusted EBITDA was up 48.2% at £1.46m (H1 2018: £0.98m), driven by new hotel openings and strong trading across owned hotels. This was impacted by the temporary closure of Old Street (refurbishing the hotel and developing a le able office), use of OTAs (driving revenues in a so ening hotel market) and investment in central resources (to support our future growth).

Adjusted EBITDAR margin of 24.8% (H1 2018: 23.6%) was up +1.2% pts.

Rent during the period was £0.34m (H1 2018: £0.14m) reflec ng a full six months of our Newcastle opera ng lease and six months of central office lease cost.

Deprecia on and amor sa on costs rose to £1.21m (H1 2018: £0.71m) rela ng to the investment made in the

Company's owned hotel development strategy. Net finance income was £0.01m (H1 2018: net finance income of £0.03m) reflecting interest received on the Group's cash balance and interest paid on debt facilities during the period.

Adjusted profit before tax, stated before share-based payments, pre-opening costs and other adjus ng items decreased slightly to £0.26m (H1 2018: £0.30).

Reported loss before tax was £0.12m (H1 2018: profit of £0.09m). Adjus ng for the temporary closure of Old Street would have resulted in an (estimated) £0.3m increase to the Group's reported profit before tax for the period.

Cash Flows and Balance Sheet

During the first half of the year, cash and cash equivalents decreased by £11.1m to £30.3m (30 September 2018: £41.4m), due to cash used in inves ng ac vi es of £14.1m par ally offset by net cash generated from opera ons of £1.93m and bank financing of £1.08m.

The Group's commi ed bank facili es were £28.6m with total borrowings, at the end of the period, of £17.7m. Net cash, being the cash balance reduced by drawn debt, at the end of the period was £12.6m (30 September 2018: £24.9m).

The Board does not undertake valua ons of the Group's hotels, therefore, records the value of its hotel assets on the balance sheet at cost. Were the Board to undertake a formal valua on of its hotels it expects that the value would exceed that recorded on the Group's balance sheet. Total non-current assets increased to £109.1m (30 September 2018: £98.1m).

Earnings Per Share and Interim Dividend

Basic earnings per share during the period was a loss of 0.08p (H1 2018: profit 0.06p).

The Board has announced an interim dividend of 0.08p per ordinary share (H1 2018: 0.07p). The interim dividend will be paid on 28 June 2019 to those shareholders on the register at the close of business on 7 June 2019. The shares will go ex-dividend on 6 June 2019.

OUTLOOK

The hotel market outlook remains uncertain, par cularly in the UK where the ongoing Brexit nego a ons con nue to dampen consumer confidence. We are by no means immune, but the maturing profile of our hotels and strong development pipeline will support con nued growth and enhance our earnings profile. Combined with the careful control of our central costs, these efforts give the Board confidence in mee ng its expecta ons for the year ending 30 September 2019.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the six months ended 31 March 2019

• System sales is a non-statutory measure and represents the full amount that the customer pays for our owned and operated hotels, as well as in respect of franchisee-owned and operated hotels (excluding VAT and similar taxes). It also includes initial sign-on fees paid by franchisees to the Company.

• 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 adjusting items. Adjusted EBITDA is shown on the face of the consolidated statement of comprehensive income as it reflects the profits from underlying operations only and is the best indicator of easyHotel's financial performance.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as at 31 March 2019 Company number 09035738

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