The Report and Financial Statements of International Hotel Investments p.l.c. (‘IHI’ or the ‘Company’) which have been approved on 31 July 2020 during its Annual General Meeting provide a unique snapshot of IHI’s financial state during year 2019. It is unique because shortly after the end of 2019, the whole world scenario changed most dramatically because of the COVID-19 pandemic which overshadowed the very good 2019 results of IHI and sapped all excitement from the positive forecast of an even better future. 

Nevertheless, 2019 can be best described as a record year. The principal milestones and achievements of IHI during 2019 are:

1. The company has achieved a record pre-tax net profit for 2019, totaling €13.9m;

2. Adjusted EBITDA has grown to €60.3m in 2019, almost double the €33m in 2014;

3. IHI have entered into arrangements with a third party investor to develop and eventually lease a prime property in Rome, which is the former headquarters of the Bank of Italy and will be transformed into a luxury Corinthia Hotel; and

4 Development work on the Corinthia Hotels in Bucharest, Brussels and Dubai has proceeded in 2019, and works on site in Moscow, Rome, and Doha have commenced in 2020.

Faced with the stark new realities in 2020, the Chairman of IHI, Mr Alfred Pisani stated that the Board and Management have an obligation to ensure the continued viability of the Company for the future. With this in mind, the following actions were taken:

A. IHI adopted all health and safety measures as directed by the relevant authorities in the various jurisdictions in which it operates. Internal guidelines on operations and staff welfare have also been circulated and updated regularly, especially now as we enter into a phase of re-opening our hotels.

B. The company has addressed a series of far-reaching cost cutting and cost containment measures, which included shutting down hotels from March, whilst still providing round the clock security and maintenance of its properties, and  making sure to keep costs to a minimum.

C. All capital expenditure (CAPEX) was curtailed, other than to finish ongoing works nearing completion.

D. Many other actions were taken following a detailed review of every cost item in its hotels, other business units and corporate offices where either rates could be renegotiated or an agreement of payment deferment was reached.

E. The Company also took immediate action to curtail its payroll by shedding all part-time workers and others on probation, whilst also removing all outside labour service providers. Many of our employees have also taken drastic cuts in their take-home pay.

F. Moreover, in all countries in which the Company operates, including Malta, Prague, Budapest, Lisbon and London, the Company benefitted from various schemes adopted by the respective Governments which included salary subsidies, as well as the waiver or deferral of payroll taxes and social security contributions. In the case of the United Kingdom, IHI also benefitted from a waiver of property taxes for 2020. These schemes are of significant benefit to the Company.

G. The Company has also negotiated with its banks both in Malta and internationally to defer payment of capital and, in some cases also interest. The Company has also organized separate lines of credit from various banks and even with related parties.

The challenging road to recovery  was longer than originally assumed. The Board of IHI is working  on the basis “that business will not revert to pre- pandemic levels any time soon, certainly not in 2020, or even in 2021”.

 In consequence, the Board has taken a very definite decision that we need to look further and deeper into our operations and make every effort so that at best in 2021 we will breakeven after paying interest on the bonds and bank loans. 

As a clearer understanding of the future unfolds, actions and cost containment are strengthened further with certain pains which are unfortunately inevitable to reduce operating costs. 

Focus on 2019. 

The CEOs of IHI listed highlights of 2019:

*IHI pre-tax profit increased by 63% from €8.5 million in 2018 to €13.9 million in 2019.

* IHI’s core EBITDA from it various owned businesses increased by €2.29 million to €69.8 million.

*Over the six years prior to 2019, IHI has practically doubled its EBITDA as a result of higher revenues in its hotels, better containment of costs and improved conversions to operating profits, apart from further acquisitions and investment in new businesses that have increased our portfolio, as indicated hereunder:

-Ownership stakes in 13 hotels in London, Brussels, Prague, Budapest, St Petersburg, Tripoli, Lisbon and, more recently in Moscow, besides four owned and one jointly owned hotels in Malta.

– Ownership of the Corinthia Brand and Corinthia Hotels Limited, a management company that is involved in and operates 21 hotels, of which 15 are branded Corinthia.

– The formation of Corinthia Developments International Limited, a developer that originates and executes branded real estate projects for IHI and other investors.

  • QP Limited, another wholly owned subsidiary, a technical, design & project management company, the largest in Malta, but also operating internationally.
  • Corinthia Caterers, an event & industrial catering company, that also owns the Costa Coffee franchise in Malta and Spain.
  • An ownership stake in the Global Hotels Alliance, alongside six world class hotel brands and software
  • Companies providing a global hospitality loyalty platform to hotels worldwide as well as:
  • Land, commercial & residential real estate property in Malta, Tripoli, London, St Petersburg, Budapest and Moscow.

 In summary, revenues are up to €268 million, an improvement of €12 million relative to the previous year mostly due to improved revenues from existing businesses.

Over 80% of this revenue is driven by the operation of IHI’s owned hotels. Rental income comprises the leasing of offices and retail units at our purpose-built commercial centers in Tripoli and St Petersburg, as well as the rental of  luxury residential penthouse in London. Total rental income amounted to €13.7 million in 2019.

Fee income from third parties is derived principally from charges levied by Corinthia Hotels Limited and QP Limited, our hotel management company and design and project management company respectively, to third party owned hotels and real estate projects. Fees charged to group companies are netted off on consolidation. The growth of this line item is a strategic focus of the Group, as we double up efforts to grow QP into an international force and expand Corinthia Hotels as a management company that operates hotels owned by other investors across the globe. In 2019, such third-party fee income increased by 10% to top the €10m mark. 

Other points to be considered:

 * Net finance costs increased by €2.5 million year-on-year to €23.2 million in 2019 relative to €20.7 million in 2018.

  • Adjustments in value of property and intangible assets amounted to a loss of €3.6 million in 2019 relative to a gain of €3.9 million in 2018.
  • Net changes in fair value of contingent consideration includes the reversal of an overprovision of €4.4 million in the overage payment to the Crown Estate on the London Penthouse the year before.
  • Gains or losses on exchange rate movements represented a €4.7 million gain in 2019 relative to a loss of €8.0 million in 2018.
  • Tax Charge of €8.8 million in 2019 relative to a tax charge of €0.013 million in 2018.

Developments

2019 was another year of significant growth. The Group is actively involved as an investor, operator, technical project manager or combination of all of the above in six projects that have all progressed well in 2019 and continue to progress further notwithstanding the 2020 pandemic.

Rome

Opening 2022

The Rome project remains on track. Design work is progressing as planned, and early strip-out and site preparation works are underway. Corinthia Developments International Limited is contracted to deliver the project, whilst Corinthia Hotels Limited is the operator and lessee.

 

Brussels

Opening 2023

The project delays in 2019 are mainly attributed to intensive re-design and negotiations with various contractors with the objective to achieve a project price in line with the group’s targets. Discussions with a selected contractor are now nearing completion and the company expects to be in a position to award a main contract as soon as it is in the group’s interest to proceed with works on site. Corinthia Developments International Limited is contracted to deliver the project, whilst Corinthia Hotels Limited is the operator.

Dubai

Opening 2020

Corinthia Hotels Limited, as the operator and provider of hotel technical services, has stayed closely involved in the construction of the 55-storey flagship project on Jumeirah Beach. Works are now targeted for completion by 2021.

Doha

Opening 2023

Corinthia Hotels Limited has entered into contractual arrangements to provide technical services and manage a luxury hotel, residential serviced villas, a beach club and a yacht club on the iconic Gewan Island, part of the Pearl development in Doha. Design work is well underway, and construction has commenced.

 

Ħal Ferħ

Planning stage

The Group has commenced a process to revise its plans for the Ħal Ferħ site in Malta. A public consultation is underway to rezone the site allowing residential use, besides tourism. Subject to permits, the group intends developing a flagship low-rise, extensively landscaped resort and residential project, set within existing restrictions on building heights, volumes and footprints.

Bucharest

Opening 2023

Work will be picking up again on the redevelopment of the landmark Grand Hotel du Boulevard in Bucharest, where a luxury Corinthia all-suite Hotel is to be created. QP Limited has been entrusted with project management, whilst Corinthia Hotels will be the operator of the property once completed.

Moscow

Opening 2023

The group has a 10 per cent stake in a major project on Moscow’s main boulevard, a stone’s throw from the Kremlin. The site is being redeveloped behind a retained historic façade and will feature a Corinthia Hotel, high street retail areas, and over 100 branded residences. Works on foundations and excavations are underway and in their early stages.

 

Some points from the Directors Report

In 2019, the Group registered net property uplifts of €6.9 million before tax on account of the continued improved trading performance of the Group’s assets. The net property uplift before tax for 2018 amounted to €42.8 million.

On account of an improved sterling and rouble relative to the reporting currency of the Group which is Euro, the Group recorded a combined currency translation profit of €34.5 million in 2019, relative to a loss of €15.3 million registered in 2018.

The Group registered a total comprehensive income of €38.9 million in 2019 against €25.3 million registered in 2018. This improved performance has to be also considered in the light of a €8.8 million tax charge in 2019 relative to a marginal tax element in 2018 in consequence of exceptional tax effects.

At 31 December 2019, the Group is again reporting a positive working capital of €16.8 million, which is a further improvement of €6.9 million compared to the figure of €9.9 million reported in 2018. This additional improvement is in consequence of a further increase of €22.5 million in cash and cash balances, which was partly offset by a reduction in trade receivables of €9.8 million and a combined increase of €8.2 million in trade payables and current portion of bank borrowings.

Future developments.

The Directors have included the following  cautious  statement about its present actions and future commitments:

“The Directors are giving due consideration to the uncertainties and mitigating factors that have been taken across the board in order to ensure the going concern of the Company. The Directors continue to closely monitor the situation on an ongoing basis with a view to minimizing the impact of the COVID -19 pandemic on the Group, the more so now as various governments are lifting border restrictions and local mobility restrictions. The Group is also reviewing on an ongoing basis the right-sizing of its operating base, even more so now as the level of business generated in the second half of 2020 will, with the gradual opening of its hotel operations, be a fraction of that generated in the corresponding period in 2019.”