STRONG FINANCIAL POSITION FOR RECOVERY AND GROWTH

ISE: DHG   LSE: DAL

Dublin and London | 1 September 2020: Dalata Hotel Group plc ("Dalata" or the "Group" or the "Company"), the largest hotel operator in Ireland with a growing presence in the United Kingdom, announces its results for the six-month period ended 30 June 2020.

RESILIENT OPERATING PERFORMANCE 

·    Swift and decisive response to Covid-19 pandemic to protect our people, cash and business

·    Launch of accredited Dalata Keep Safe Programme

·    Proactive cost reductions minimised cash utilisation during period of low occupancies

STRONG BALANCE SHEET PROVIDES STABILITY AND OPPORTUNITY

·    Cash/available facilities increased by €13 million from €162 million in December 2019 to €175 million in June 2020

·    Cash of €110 million and undrawn committed debt facilities of €111 million at the end of August

·    Asset backed balance sheet with hotel assets of €1.2 billion in prime locations

·    Net Debt to Adjusted EBITDA pre IFRS 16¹ of 4.9x at 30 June 2020 (post IFRS 16¹: 7.4x)

ANNOUNCING TODAY

·    Signed agreement for lease for two new hotels in Brighton and Manchester

PROTECTING AND DRIVING SHAREHOLDER VALUE DESPITE CHALLENGES

·    Sale and leaseback of Clayton Hotel Charlemont, Dublin for €65 million

·    Exciting pipeline of close to 3,300 rooms in excellent locations

 STRATEGIC AND OPERATING HIGHLIGHTS

·    All hotels have re-opened and are operating under the accredited Dalata Keep Safe Programme. Experienced management teams at each hotel focused on the safety of our customers, employees and suppliers.

·    2020 started positively with encouraging trading in January and February. Record low occupancies followed during the remainder of the six-month period due to the Covid-19 pandemic. During this time, Dalata's key priorities were the protection of our people, customers and liquidity.

·    The Group protected cash during the period of low occupancies through proactive cost reductions and working capital management, contracted business for essential services, utilisation of governments' support initiatives, cancellation of proposed dividend and the postponement of uncommitted capital expenditure.

·    Financial position remains robust with the amended Group's debt facilities providing additional financial flexibility as the hotels re-open for business. Dalata's strong liquidity position includes cash resources of €110 million and undrawn committed debt facilities of €111 million at the end of August.

·    Asset backed balance sheet remains strong with €1.2 billion in hotel assets despite total revaluation losses of €161 million, arising from independent asset valuations in June 2020, representing a circa 12% decrease on valuations at December 2019.

·    Dalata is focused on positioning the business for further growth and a successful recovery. Our growth strategy remains compelling with exciting opportunities in London and larger regional UK cities.

·    Signed agreements to lease two new superbly located Maldron hotels to be constructed in Brighton and Manchester, which brings the current pipeline to almost 3,300 new rooms. Dalata's pipeline of seven hotels already under construction includes two in Ireland and five in the UK; all of these properties will open between Q1 2021 and Q1 2022. Ten development projects including extensions are currently at the pre-construction phase. At a normalised run rate, we would expect the 13 new hotels to contribute EBITDAR in excess of €50 million in line with our targeted rental covers in year three of normal operation.

OUTLOOK

Since the end of June, the Group has been gradually opening its hotels with 100% of its hotels now re-opened. Occupancy for the Group amounted to 30% in July and is projected to be approximately 40% for August. While bookings from domestic guests are encouraging, the outlook for the near term remains uncertain at present with short lead time on bookings and it is not yet known when international travel will return to more normal levels. Adjusted EBITDA is expected to be in the range of €7.0 million to €7.5 million for the July and August period.

We will continue to mitigate the financial consequences of the impact of Covid-19 through proactive cost reductions, maintaining our strong liquidity and assessing distressed opportunities as they arise. With cash of €110 million and available facilities of €111 million at the end of August, Dalata is very well positioned to withstand the challenges resulting from the Covid-19 pandemic and is focused on the anticipated recovery in global tourism in the medium term. The hospitality sector has historically shown tremendous resilience to recover from other demand shocks and crises and the Board believe that Dalata is well placed to benefit from the recovery with its young, well invested portfolio, experienced Senior Executive team and strong balance sheet.

Pat McCann, Dalata Group CEO, commented:

"I am delighted to welcome guests again to our hotels, all of which have now re-opened to the public. In over 50 years of working in this industry, I never previously had to close a hotel. The impact of the pandemic has been felt by all of the Dalata team since early March. However, I have been greatly heartened by the positive reaction of all of our people.

We were busier than ever during the lockdown period. Our hotel management teams maintained the hotels and managed the essential services business during the height of the pandemic. They showed extraordinary flexibility and dedication during the lockdown period - they were our frontline workers.

For those employees at home on the income support schemes, I was greatly encouraged by their participation in the education and training courses made available through Dalata Online by our Human Resources team. There were approximately 23,600 online courses and virtual classes completed from the beginning of April to the end of June.

Central Office was busy as well. Our operations team designed the hugely successful Dalata Keep Safe programme. We teamed up with Bureau Veritas to get independent accreditation of our procedures. Our sales and revenues teams dealt with customers on cancellations and deposits as well as working with government agencies in ensuring that we could help in any way in dealing with the demands of the pandemic. Our finance team provided the information necessary to make timely informed decisions as well as facilitating two renegotiations of our debt facilities agreement. Our development team has secured two new exciting opportunities as well as managing the development of the current pipeline. Our marketing team designed a hugely successful marketing campaign that helped restart our business in all regions.

I would also like to acknowledge the contribution of the Board, which has provided great support to the executive team over the last number of months.

Our people are the heart of our business. Crises test the strength of a team and the Dalata team has excelled over the last six months. However, we are well aware that there still remain many challenges ahead.

Our people have rallied to ensure the best and safest experience for our returning customers. It is true that the impacts of Covid-19 challenge how we deliver our warm hospitality, but we have worked hard together to find new ways to ensure an enjoyable and safe experience for both our people and our guests. As regards the business since re-opening, I am encouraged by the demand from domestic leisure customers. Occupancy levels for the Group reached 30% in July and is projected to be 40% in August. As expected, our hotels in regional Ireland and regional UK performed better than those in Dublin and London, which depend more on international travel and events.

We could never have foreseen the extent of the challenges we now face with Covid-19 but we have always approached the management of our balance sheet in a way that ensured we would be ready for the inevitable ups and downs in our industry, including shocks, and yet position it for ongoing growth and opportunity. We therefore entered the Covid-19 crisis in a very strong financial position. Our asset backed balance sheet and comfortable gearing ensured Dalata was well placed to confront the resulting challenges.

I am delighted to report that we managed to increase our liquidity position during the second quarter despite our hotels being closed to the public. This was achieved through a strong partnership with our banking club, initially agreeing an amendment to the Group's debt facility agreement in March followed by a more comprehensive amendment in July. The two new covenants, Net Debt to Value and the minimum liquidity test, provide us with additional flexibility as the business recovers from the impact of the Covid-19 pandemic. We also increased the total facility package by €39 million.

Our institutional landlords continue to actively support Dalata and remain committed to our long-term partnerships. We completed the sale and leaseback of Clayton Hotel Charlemont in Dublin to Deka Immobilien in April at a very competitive yield, despite the onset of the pandemic. This transaction is a great example of our ability to generate shareholder value through excellence in identifying, securing, developing and operating hotels. The gross proceeds of €65 million, additional debt facilities, together with our proactive cost reductions and working capital management, amongst other measures, ensured we maintained a robust financial position. Dalata had cash resources of €110 million and undrawn facilities of €111 million at the end of August.

I remain excited about Dalata's opportunities for growth. In 2014, we identified a unique opportunity to assemble a portfolio of outstanding hotel assets in the early stages of recovery following the Global Financial Crisis. The impact of the current crisis is likely to present fresh opportunities for us in the coming year. I am very pleased that we have managed to secure opportunities to lease new hotels in prime areas of Brighton and Manchester.

Since we re-opened all of our hotels to the public we have launched new marketing campaigns targeting the domestic visitor in Ireland and the UK with a strong focus on value pricing. The introduction of the Dalata Keep Safe Programme across all hotels, comprising advanced sanitisation procedures, new technologies, and effective physical distancing measures, has been well received by our corporate and leisure guests, employees and suppliers.

All of our stakeholders have been impacted during these challenging times and made some form of sacrifice. Our banking club agreed to more flexible covenants and we reached various arrangements with our landlords. Our suppliers have experienced a reduction in business. Our loyal customers have been impacted by travel restrictions and the closure of hotels. Our people have been impacted through reduced working hours or loss of income. Our non-executive directors have taken reductions in their fees while the Senior Executive team have taken salary reductions. Shareholders have experienced loss through a fall in the share price and the cancellation of proposed dividends.

I welcome the recent stimulus packages announced by the Irish and UK governments. Given the scale of our business in Ireland, the Irish stimulus package is particularly important. I welcome the Employment Wage Subsidy Scheme being put in place until 31^st March 2021. I also welcome the six month waiver granted on commercial rates but would suggest that this be extended for hospitality businesses until 31^st March 2021 to support operators through the quieter winter period. In addition, I am calling on the Irish government to reduce the VAT rate for the tourism and hospitality sector to 9% for the next five years. This will support the recovery of international travel to Ireland.

While the future remains uncertain, I am encouraged by the positive demand drivers in the markets in which Dalata operates. The Irish economy and Dublin market is underpinned by strong FDI from industries which will be less impacted by Covid-19. There is also likely to be pent-up demand for key destination cities such as London and Dublin.

We remain focused on protecting the business, our people and our financial strength as we position the business for a successful recovery and to look for growth opportunities that may arise out of the crisis. Our key strengths continue to be our culture and people, our asset backed balance sheet, our strong liquidity position, our experienced management team and our record of identifying and securing opportunities in a crisis.

There are many challenges ahead but the Dalata team has demonstrated that it is up for those challenges and determined to emerge stronger from the impacts of Covid-19".

ENDS

This announcement contains inside information (relating to an intention to conduct a placing) within the meaning of the EU Market Abuse Regulation 596/2014. The person responsible for arranging release of this announcement on behalf of Dalata is Sean McKeon, Company Secretary of Dalata.

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 9,211 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 first six months of 2020, Dalata reported revenue of €80.8 million and a loss after tax of €63.1 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 08:00 BST today 1 September 2020, and this can be accessed using the contact details below.

From Ireland dial:  +353 1 431 1252

From the UK dial:  +44 3333 000 804

From the USA dial:  +1 631 913 1422

From other locations dial:  +353 1 431 1252

Participant PIN code: 72868056#

Contacts

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 Company 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 Company 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.

Half Year 2020 Financial Performance

Summary of hotel performance

During the first six months of 2020, revenue decreased by 60% to €80.8 million. Dalata had a positive start to 2020 with trading in line with expectations in January and February. The Group's portfolio of 44 hotels was then significantly impacted by the sudden onset of the Covid-19 pandemic. Trade in March was impacted by the cancellation of major public events and the introduction of travel restrictions. All hotels were temporarily closed to the public for the majority of April, May and June in line with guidelines issued by the Irish and UK governments ("lockdown"). A number of hotels remained open for business regarded as essential during the lockdown period.

Segments EBITDAR decreased by 81% to €15.6 million for the six-month period. The Group mitigated the financial impact of the reduction in occupancy through pro-active cost reductions and the utilisation of government grants and assistance. Dalata secured significant savings across all categories of expenditure. Variable costs such as the cost of food and beverage purchases, consumables for bedrooms and OTA commissions decreased substantially during the period when the hotels were closed. The Group introduced a combination of reduced working hours and progressive reduction of basic salary for employees and Directors. The Group received wage subsidies of €5.2 million to support incomes of employees. The Group has also received financial assistance by way of a commercial rates waiver from the Irish and UK governments. Consequently, the results for the six months ended 30 June 2020, include a saving of €3.1 million representing the local authority rates charges for Q2.

Performance Review | Segmental Analysis

The following section analyses the results from the Group's portfolio of hotels in Dublin, Regional Ireland and the United Kingdom.

1. Dublin Hotel Portfolio

Our sixteen hotels in the Group's Dublin 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 long-term leases.

Our Dublin hotels had a strong start to 2020 earning revenue of €30.8 million in the first two months of the year. In March, the Dublin hotel portfolio, which has a higher proportion of international visitors, was impacted due to corporate travel bans and the cancellation of events as a result of the Covid-19 pandemic. 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. Dublin RevPAR declined by 65% to €37 for the first six months of 2020. However, proactive cost reductions and the utilisation of government grants and assistance totalling €2.5 million reduced the impact of the lost revenue on EBITDAR.

2. Regional Ireland Hotel Portfolio

Our thirteen hotels in the Regional Ireland portfolio comprise 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 long-term lease.

Our Regional Ireland hotels had an encouraging start to 2020, earning revenue of €10.9 million during January and February. 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. Occupancy reduced to 10.4% during the period from April to June. RevPAR declined by 60% to €26 for the first six months of 2020. However, proactive cost reductions and the utilisation of government grants and assistance amounting to €1.4 million mitigated the impact on EBITDAR.

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. Eight hotels are owned and four are operated under long-term leases.

Our UK hotels had a strong start to 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 but re-opened in early July. Occupancy reduced to 7.9% during the period from April to June. Through proactive cost reductions and the utilisation of government grants and assistance amounting to £3.6 million, the Group was able to mitigate the impact of the lost revenue to the bottom line.

Government grants

The Group availed of government grants and assistance during the period ended 30 June 2020.

The Group received government grants in the form of the Covid-19 Temporary Wage Subsidy Scheme in Ireland amounting to €2.5 million and the Coronavirus Job Retention Scheme in the UK amounting to £2.4 million (€2.7 million) in the six months to June 2020.

The Group also received financial assistance by way of commercial rates waivers from the Irish and UK governments. In Ireland, commercial rates have been waived for the period 27 March to 27 September 2020. In the UK, there is a 12-month commercial rates waiver from 1 April 2020 to 31 March 2021. In the period to 30 June 2020, this represents a three-month saving of €1.8 million at the Group's Irish hotels and £1.1 million (€1.3 million) at its UK hotels.

Under the warehousing of tax liabilities recently introduced by the and Irish and UK governments, the payment of Irish VAT liabilities of €3.3 million and payroll tax liabilities of €5.8 million have been deferred until Q3 2021. In the UK, VAT liabilities of €0.4 million (£0.4 million) have been deferred until 31 March 2021 and payroll tax liabilities of €1.2 million (£1.1 million) are being paid by instalments, as agreed with the UK tax authorities. The majority of these payroll tax liabilities were settled in July 2020 and the remainder will all be settled within 12 months.

Central costs and share-based payments expense

Central costs amounted to €4.3 million for the first six months of 2020. Central costs decreased by 17% compared to the same period last year after excluding the impact in 2019 of the release of insurance provisions totalling €1.5 million. The Group has proactively decreased costs to mitigate against the Covid-19 impact through reductions in payroll by way of salary cuts and reduced working hours, suspension of all discretionary sales and marketing expenditure and the deferral of other non-committed expenditure. 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, there has been revaluation losses of  €161.0 million on our property assets in the six months to 30 June 2020. €133.7 million of the reduction is recorded through the revaluation reserve (year ended 31 December 2019: net gain of €120.8 million). €208.3 million remains in the revaluation reserve as at 30 June 2020 relating to prior period unreversed revaluation gains. €27.3 million of the valuation reduction in the six months to 30 June 2020 is recorded through profit or loss (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 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

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 'period on period' 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 €27.3 million for the first six months of 2020.

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 €1.6 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 related primarily to leased properties resulting in impairments of right-of-use assets (€7.4 million), goodwill (€3.2 million) and fixtures, fittings and equipment owned by the hotels in leased properties (€1.1 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, typically the end of the lease term. The depreciation of right-of-use assets increased by €2.4 million from the six months ending 30 June 2019 to €10.6 million for the first six months of 2020 due principally to additional depreciation on the new right-of-use assets arising from the lease of Clayton Hotel Charlemont, Dublin in April 2020 and Clayton Hotel Cambridge in November 2019.

Depreciation of property, plant and equipment

Depreciation increased by €0.6 million to €13.5 million 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 partially offset by a decrease in the depreciation charge following the sale of Clayton Hotel Charlemont, Dublin in April 2020.

Finance Costs

Interest on lease liabilities increased due to the additional leases added since the end of the prior period. The leases on Clayton Hotel Cambridge and Clayton Hotel Charlemont, Dublin entered into in November 2019 and April 2020 increased the interest on lease liabilities charge by €1.1 million and €0.5 million respectively. This was partially offset by additional capitalised interest resulting from the acquisition of a site in Shoreditch, London in August 2019.

Tax charge

As the Group expects to incur a loss before tax in 2020, the Group has recognised a tax credit of €7.8 million at 30 June 2020 in relation to the net value of tax losses which are available to utilise against both prior year taxable profits and future taxable profits. The majority of these tax losses will be set against prior year taxable profits and following Irish and UK government initiatives a large portion of these tax refunds relating to prior period taxes paid will be received over the coming months. The Group is confident that the remaining tax losses carried forward will be 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 building Clayton Hotel Charlemont, Dublin and the sales proceeds received.

(Loss)/earnings per share

The Group's EPS for the first six months of 2020 was severely impacted by the Covid-19 pandemic. This resulted in a 51.7 cents decrease in basic earnings per share and a 30.3 cents decrease in adjusted basic earnings per share for the six months ended 30 June 2020.

Strong Management of Cash Flow

Dalata continues to have strong liquidity with significant financial headroom. The Group had cash resources of €103 million and undrawn committed debt facilities of €72 million at the end of June. The undrawn committed debt facility was subsequently increased to €111 million following an amendment to the Group's debt facility agreement in July 2020. A new covenant, the minimum liquidity covenant, added as part of the amendment means the Group must at all times maintain €50 million in cash or undrawn facilities until 30 March 2022.

Dalata successfully reduced its cash utilisation during Q2 when its hotels were closed to the public. The Group implemented several measures to mitigate the financial consequences of the impact of Covid-19 including proactive cost reductions, focused working capital management, postponement of uncommitted capital expenditure and the withdrawal of the proposed final 2019 dividend. The Group also availed of government support initiatives in Ireland and the UK including the deferral of VAT and payroll tax liabilities. The sale of Clayton Hotel Charlemont, Dublin for gross proceeds of €65 million further increased liquidity.

At 30 June 2020, the Group has commitments relating to capital expenditure of €46.1 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 Q1 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 €13.9 million for the six months ending 31 December 2020 and €33.3 million for the year ending 31 December 2021. Non-cancellable lease rentals and other contractual obligations payable under the agreements for lease which have not yet commenced are projected to amount to €1.1 million for the six months ending 31 December 2020 and €9.1 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 and sensitised them for a number of downside scenarios including a lockdown scenario through 2021. In each scenario, the Group has sufficient liquidity to continue to meet its obligations as they fall due, for at least 12 months from the approval of these financial statements, and is not forecast to be in breach of any of the newly agreed suite of covenants.

Balance Sheet | Offering Protection and Opportunity

Our balance sheet remains strong, despite the challenging economic environment, with €1.2 billion of property, plant and equipment in prime locations across Ireland and the UK.

The impact from the Covid-19 pandemic necessitated an amendment to our debt facilities. This was completed in July 2020 with the support of our banking club. The Group raised an additional €39 million in revolving credit facilities with a maturity date of September 2022. This agreement has increased Dalata's undrawn facilities to €111 million which includes a minimum liquidity restriction of €50 million. The revised covenants were put in place to provide the Group with appropriate flexibility as trading profits recover to avoid any potential breaches in covenants based on twelve months trailing earnings.

Property, plant and equipment

Property, plant and equipment amounted to €1,215.4 million at 30 June 2020. The decrease of €256.0 million in six months is driven principally by revaluation losses on property assets of  €161.0 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 €26.8 million and the depreciation charge of €13.5 million partially offset by additions of €17.5 million.

The Group typically allocates 4% of revenue to refurbishment capital expenditure. However, as a result of Covid-19, 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 which slowed contracted spend.

In the first six months of 2020, €3.7 million was spent on refurbishing bedrooms and a further €3.4 million was incurred on public areas, back of house areas and completing health and safety works.

During the period, the Group spent €10.4 million on committed development capital expenditure including:

·    €2.6 million on the new conference centre being constructed at Clayton Hotel Cardiff Lane, Dublin;

·    €2.6 million on renovation works at Clayton Hotel Burlington Road, Dublin which were completed in July 2020;

·    €1.4 million on the development of the new Maldron Hotel Merrion Road, Dublin; and

·    €0.7 million on works completed on the ground floor restructuring of Clayton Hotel Birmingham.

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 €2.1 million during the period ended 30 June 2020.

Right-of-use assets and lease liabilities

At 30 June 2020, the Group's right-of-use assets amounted to €414.0 million and lease liabilities amounted to €395.0 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 principally relate to the Group entering into a 35 year lease in April 2020 of the Clayton Charlemont Hotel 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.

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 (€7.4 million), goodwill (€3.2 million) and fixtures, fittings and equipment owned in leased properties (€1.1 million).

The remeasurement of lease liabilities relates to a reassessment of lease liabilities following the rent reductions agreed as a direct consequence of hotel closures during the Covid-19 pandemic. The associated right-of-use assets have decreased accordingly.

Loans and borrowings

As at 30 June 2020, the Group had loans and borrowings of €441.9 million and undrawn committed debt facilities of €71.8 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, when the UK and Irish governments moved to implement lockdowns in response to the pandemic, the Group proactively 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. Dalata is in compliance with its covenants as at 30 June 2020.

In July 2020, Dalata entered into an amended and restated facility agreement with its banking club. The previous covenants comprising Net Debt to EBITDA and interest cover will not be tested again until June 2022. These two covenants have been replaced by a Net Debt to Value covenant and a minimum liquidity test, whereby the Group must have a minimum of €50 million available to it in cash or undrawn facilities. The RCF has been increased by €39 million to €364 million until September 2022 as part of the agreement. The undrawn committed debt facilities have increased from €72 million at the end of June to €111 million as a result of the increase in the RCF.

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 Group's principal risks and uncertainties for the remainder of 2020 are:

·    The Covid-19 pandemic has severely impacted business during the first six months of 2020. While our hotels have since re-opened, occupancies remain low. The outlook for the future remains uncertain at present and it is not yet known when international travel will return to more normal levels. Furthermore, the fallout from this crisis has resulted in a slowdown in the world economy resulting in an impact on the demand for hotel rooms. However, Dalata's Senior Executive team have significant experience dealing with major demand shocks and crises over the last 20 years. The Group also continues to maintain a strong financial position with sufficient headroom including hotel assets of €1.2 billion at the end of June and cash of €110 million and unutilised committed debt facilities of €111 million at the end of August.

·    The level of bank borrowings and the associated interest payments and related covenants impact the Group's operating and financial flexibility and increase the potential of default risk. The Group remains disciplined in not overleveraging and ensuring that it can withstand substantial demand shocks. The Group also mitigates this risk by preparing detailed financial forecasting and analysis and monitoring debt covenants. Throughout the current crisis we continue to maintain very strong relationships with our banking club and agreed amendments to the Group's debt facilities agreement in March and July 2020. The July amendment provides additional flexibility to support the Group as the business recovers from the impact of the Covid-19 pandemic with revised covenants until June 2022.

·    Other events, such as geo-political events or international terrorism, could also result in uncertainty and could have an impact on general economic activity in the UK and Ireland and further afield, which in turn could impact the number of people looking to stay at hotels in both countries.

·    Talks on trading arrangements since the UK has left the European Union (EU) have been disrupted by the Covid-19 outbreak. As a result, the nature of the future trading relationships between the UK and the EU as well as between the UK and other countries remains uncertain. This uncertainty and the resulting outcome may have a negative impact on both the UK and Irish economies. This, in turn, could impact on demand for hotel rooms in both countries.

·    Significant fluctuations in exchange rates can make destinations more expensive or cheaper for potential customers to visit. The recent uncertainty around both Brexit and Covid-19 has caused notable fluctuations in the value of Sterling versus other currencies. A significant reduction in the value of Sterling would make Ireland a more expensive destination for UK visitors, which in turn could impact on the number of UK residents staying in Irish hotels. While UK visitors are an important part of our business in Ireland, 85% of our rooms in Dublin were sold to either domestic consumers or visitors from countries other than the UK in 2019. Only 8% of our rooms sold in our Regional Ireland hotels were to UK customers during 2019.

·    A very significant proportion of EBITDA is generated by the Dublin hotel portfolio, and therefore any downturn in the Dublin market is likely to have a material impact on the Group's performance. There is potential exposure to a decline in business in the event of either a decline in demand in Dublin or a significant increase in supply of rooms. Our UK expansion strategy will reduce the proportion of EBITDA produced out of Dublin over time.

·    The opening of new hotels presents an operational risk that expected earnings may not materialise. The Group is minimising this risk by having teams in place and contracting business with corporates and tour operators well in advance of the hotels' opening dates. Senior management have considerable past experience and a strong track record of success in opening new hotels. The new hotels opened in 2018 and 2019 were performing well before the onset of the Covid-19 pandemic.

·    As Dalata expands there is a risk that the organisation's unique culture and values could be damaged. The rollout of the Dalata business model is dependent on the retention of its strong culture. The Group is actively managing this risk by focusing on the behaviours of executive management, investing in training and development programmes and through its employee engagement programme.

·    Dalata's business model is built on the ability to grow and retain expertise. There is a risk to the Group's ongoing and future success if it fails to retain key people and develop new talent within the Group. To minimise this risk the Group invests in training and development programmes and reviews market remuneration trends. Despite the impact of Covid-19, the Group kept all senior management teams in place to ensure we protect our experienced talent as we continue to manage the business through this shock and position ourselves for ongoing growth including taking advantage of opportunities emerging in the current environment.

·    As a high volume provider of accommodation and food and beverage services including catering for conferences, meetings and events, footfall at our properties exceeded five million people in 2019 and we employed nearly 5,000 employees. The Group has adequate insurance in place to cover any financial losses that may result due to incidents causing injury or harm to our guests or employees. However, the Group could suffer reputational damage as a result of such incidents. The Group invests significant resources into its health and safety systems to minimise the risk of such incidents occurring.

·    The Covid-19 pandemic represents a risk to the underlying health of our customers, people and suppliers. We are actively managing this risk through the roll out of our Dalata Keep Safe Programme. We introduced new protocols including advanced sanitisation, new technologies, and effective physical distancing measures. Our people received rigorous training on maintaining a safe and healthy environment at our hotels. All of our new health and safety protocols are accredited by Bureau Veritas, a world leader in testing inspection and certification in the Health and Safety area. To date, 43 of our 44 hotels have been audited by Bureau Veritas.

·    The environment and climate change came into sharp focus in 2019 with an increase in stakeholder concern and expectations. There is a risk that Dalata could suffer reputational damage and a loss in customer, employee or other stakeholder confidence if it does not appropriately recognise and respond to the impact of our business activities on the environment. The Group is committed to addressing stakeholder concerns and announced the formation of a Board subcommittee responsible for environmental, social and governance oversight, effective from 1 January 2020.

·    Our information systems could be subject to an external or internal cyber event with the potential for data loss/theft. This could result in a denial of service, data breach, loss of revenue, business disruption, reputational damage. In recent years, the Group has upgraded IT systems across the business with an emphasis on establishing common platforms. The reduced number of software vendors improves the management of data and facilitates greater standardisation of processes. The Group retains third-party cybersecurity experts to support the IT department and has a Privacy Committee to monitor compliance with data privacy regulations and the Group's policies. Internal Audit is supported by external expertise to carry out independent reviews of cybersecurity risk management. The Audit and Risk Committee provides oversight.

Statement of Directors' responsibilities

For the half-year ended 30 June 2020

The Directors are responsible for preparing the half-yearly financial report in accordance with the Transparency (Directive 2004/109/EC) Regulations 2007 ("the Transparency Directive") and the Transparency Rules of the Central Bank of Ireland.

In preparing the condensed set of financial statements included within the half-yearly financial report, the Directors are required to:

-  prepare and present the condensed set of financial statements in accordance with IAS 34 Interim Financial Reporting as adopted by the EU, the Transparency Directive and the Transparency Rules of the Central Bank of Ireland;

-  ensure the condensed set of financial statements has adequate disclosures;

-  select and apply appropriate accounting policies; and

-  make accounting estimates that are reasonable in the circumstances.

The Directors are responsible for designing, implementing and maintaining such internal controls as they determine are necessary to enable the preparation of the condensed set of financial statements that is free from material misstatement whether due to fraud or error.

We confirm that to the best of our knowledge:

(1)  the condensed set of consolidated financial statements included within the half-yearly financial report of Dalata Hotel Group plc for the six months ended 30 June 2020 ("the interim financial information") which comprises the condensed consolidated statement of comprehensive income, condensed consolidated statement of financial position, condensed consolidated statement of changes in equity, condensed consolidated statement of cash flows and the related explanatory notes, have been presented and prepared in accordance with IAS 34 Interim Financial Reporting, as adopted by the EU, the Transparency Directive and Transparency Rules of the Central Bank of Ireland.

(2)  The interim financial information presented, as required by the Transparency Directive, includes:

a.    an indication of important events that have occurred during the first six months of the financial year, and their impact on the condensed set of consolidated financial statements;

b.    a description of the principal risks and uncertainties for the remaining six months of the financial year;

c.     related parties' transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or the performance of the enterprise during that period; and

d.    any changes in the related parties' transactions described in the last annual report that could have a material effect on the financial position or performance of the enterprise in the first six months of the current financial year.

On behalf of the board

John Hennessy                                                                 Patrick McCann                                                    

Director                                                                                Director

Dalata Hotel Group plc

Unaudited condensed consolidated statement of comprehensive income

for the six months ended 30 June 2020  

Dalata Hotel Group plc

Unaudited condensed consolidated statement of financial position

at 30 June 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 30 June 2020, which reflects the timing of the future capital repayments of the lease liabilities (note 13).