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International Hotel Investments has announced its full year results, which merits careful reading before drawing up conclusions. This Euro denominated share Equity Company made a loss of ten and a half million euros as against the three quarters of a million euro made in the previous year. However, during both years there were one-off extraordinary events that merit analysis.
As a start, the company increased its turnover by 11% to exceed sixty million euro. Corinthia’s hotel in Lisbon and Budapest were the major hotels that increased the revenue figures. Additionally, the increase in direct costs was not a proportionate increase resulting in an improved Gross Profit of Euro 21.3 million. Yet as a result of increased activity, operating expenses increased.
From here on, any investor or reader of these financials should take note of two line items. In 2006, the company took a hit of over seven million euros technically termed as impairment. The selective notes to the accounts explain that the Board of Directors obtained a valuation from an independent expert on its Corinthia Lisboa property. After taking into account its expected future income streams and comparing this resultant figure with the book value, the directors considered it prudent to decrease the book value, which impacted heavily, and negatively the 2006 results.
On the other hand in the previous year the property portfolio was revised upwards by Euro 5.5 million. Since this was not repeated again this year, the combination of these two unique book and non-cash transactions not only depressed this year’s results but also affected a comparative exercise.
Moreover the company re-valued positively its investment property and recorded a profit from this revaluation nearly as much as in the previous year. Other items of the income statements are relatively normal to report upon except for Income Tax where this year it is not an expense for the company.
It has to be kept in perspective that IHI took a majority stake in Corinthia Hotels Management Company, but no material impact has been recorded as it happened during the last quarter of 2006.
The segmental reporting given in the explanatory notes give further insight to the revenue streams and profitability of the company. Whereas the company registered a loss from its Malta based Hotel properties, it was not the case from corporate business. Furthermore, those hotels based within the EU, registered losses whilst those in other European countries continue to return a profit.
As a balance sheet, this listed company has a marginal but albeit favourable net current asset figure and a strong value of long term assets that 46% of which are funded by the shareholders funds.
These financials of IHI are any academic’s dream as they do have details of a business acquisition and information on related party transactions as well as an Outlook statement.
Overall, investors have to understand that IHI is an owner of property whose value depends on revenue streams. Such revenue is earned from tourism figures that vary with the trends of consumers that change. |
