Mr James B Sherwood, Chairman, said that two external factors had resulted in slower earnings growth in the second quarter than expected. The South African rand declined unexpectedly against the U.S. dollar. Because of extremely high local currency interest rates the company borrows against its South African properties in U.S. dollars. Under current accounting rules it must expense the loss on translation of foreign currencies into U.S. dollars even though the loss will not necessarily be realized. In the second quarter of 2005 the company had a small foreign exchange gain of $0.5 million so the adverse foreign exchange impact was $4 million ($0.10 per common share) year on year.
Second, interest costs in the second quarter were $3.3 million higher than in the second quarter of 2005, largely due to the increases in U.S. dollar interest rates dictated by the U.S. Federal Reserve. The company finances most of its debt with floating interest rates.
Mr Sherwood said that all the company’s segments had shown improvement at the EBITDA level in the second quarter over the prior year period, except for restaurants which were flat year on year. European hotels were exceptionally strong with EBITDA up 15%, Southern Africa hotels were up 127%, South Pacific up 61% and management interests up 10%. Reduced earnings from the Windsor Court Hotel in New Orleans depressed gains from North American hotels as a whole, but the company expects to recover the Windsor Court shortfall through its business interruption insurance which continues for one year after the 2005 hurricanes.
2
“Recent months have been an extremely busy period for the company. Not only did we complete the Casa de Sierra Nevada acquisition, we also finalised the acquisition of the Napasai property in Koh Samui and the six hotel Pansea group for about $50 million. We also raised $100 million of new equity capital at approx. $40 per share, which will greatly assist our expansion program. We have offers outstanding on three hotels, one in the U.S., one in Brazil and one in Italy. It is not possible to say if these offers will be accepted (one is a public tender) but we are hopeful”.
Mr Simon M C Sherwood, President, said that EBITDA before the sale of shares in Harry’s Bar grew 10% to $41.1 million, and the average daily room rate of owned hotels in U.S. dollars was up 6% to $417 from $395 in the same period of 2005. Same store RevPAR in U.S. dollars was up 7% to $269 from $252 in the year earlier period. EBITDA margin for the quarter was up 1% to 29%.
He reviewed performance by region as follows:
Europe. EBITDA of owned hotels was $24.3 million, compared with $21.1 million in the year earlier period. The Hotel Caruso Belvedere in Ravello, the Hotel Splendido in Portofino and the Grand Hotel Europe in St Petersburg largely accounted for the favorable variance. The new spa at Reid’s in Madeira is expected to be completed by September.
North America. EBITDA of owned hotels was $5.5 million compared with $5.3 million in the year earlier period. Improvements at La Samanna in St Martin, Keswick Hall in Charlottesville and the Inn at Perry Cabin in St Michael’s were offset by the continued hurricane effect on the Windsor Court in New Orleans (recovery through insurance is expected) and commencement of the reconstruction program at El Encanto in Santa Barbara.
3
Southern Africa. EBITDA of owned hotels was $0.6 million compared with $0.3 million in the year earlier period.
South America. EBITDA of owned hotels was $2.4 million compared with $2.3 million in the year earlier period. The Miraflores Park Hotel in Lima more than offset a small decline at the Copacabana Palace Hotel in Rio de Janeiro.
The rebuilt banqueting rooms at the Copacabana Palace are expected to be completed in September and the new spa by the end of the year.
South Pacific. EBITDA of owned hotels was $0.6 million compared with $0.4 million in the prior year period. All three properties registered gains.
Hotel management and part-ownership. EBITDA was $6.3 million compared with $5.7 million in the year earlier period. Charleston Place and Peruvian hotels were largely responsible for the gains.
Restaurants. EBITDA was $1.5 million compared with $1.6 million in the prior year period. The reduction was caused by the sale of the company’s 49% interest in Harry’s Bar, London to its partners at a gain of $3.3 million after tax.
Tourist trains and river cruises. EBITDA was $5.4 million compared with $5.2 million in the prior year period. Improvements from PeruRail and the Venice Simplon-Orient-Express were offset by worse performance from the British Pullman train.
Mr Simon Sherwood said “The third quarter is our main earnings period of the year and it looks promising with occupancies high and rates firm.”
4
“At our Cupecoy Village property development in St Martin the infrastructure is largely complete and residential construction is expected to start later this year with completion in 2008”.
“We are now focusing on the major renovations required at El Encanto in Santa Barbara and Casa de Sierra Nevada in San Miguel de Allende, Mexico. We expect to complete substantially these works by the end of 2007. In addition to the new spas at Reid’s and the Copacabana Palace we are constructing spas at the Inn at Perry Cabin and the Mount Nelson Hotel. We will be renovating a floor of rooms at the Ritz in Madrid, another 100 rooms at the Grand Hotel Europe in St Petersburg and expect to complete 9 new suites at La Residencia in Mallorca, all in the first quarter of 2007”, he concluded.
***
Management believes that EBITDA (net earnings adjusted for interest expense, foreign currency, tax, depreciation and amortization) is a useful measure of operating performance, for example to help determine the ability to incur capital expenditure or service indebtedness, because it is not affected by non-operating factors such as leverage and the historic cost of assets. EBITDA is also a financial performance measure commonly used in the hotel and leisure industry, although the company’s EBITDA may not be comparable in all instances to that disclosed by other companies. EBITDA does not represent net cash provided by operating, investing and financing activities under U.S. generally accepted accounting principles, is not necessarily indicative of cash available to fund all cash flow needs, and should not be considered as an alternative to earnings from operations or net earnings under U.S. generally accepted accounting principles for purposes of evaluating operating performance.
This news release contains, in addition to historical information, forward-looking statements that involve risks and uncertainties. These include statements regarding earnings outlook, investment plans and similar matters that are not historical facts. These statements are based on management’s current expectations and are subject to a number of uncertainties and risks that could cause actual results to differ materially from those described in the forward-looking statements. Factors that may cause a difference include, but are not limited to, those mentioned in the news release, unknown effects on the travel and leisure markets of terrorist activity and any police or military response, varying customer demand and competitive considerations, realization of hotel bookings and reservations and planned property development sales as actual revenue, inability to sustain price increases or to reduce costs, fluctuations in interest rates and currency values, uncertainty of negotiating and completing proposed capital expenditures and acquisitions, adequate sources of capital and acceptability of finance terms, possible loss or amendment of planning permits and delays in construction schedules for expansion or development projects, delays in reopening properties closed for repair or refurbishment and possible cost overruns, shifting patterns of tourism and business travel and seasonality of demand, adverse local weather conditions, uncertainty of recovering on insurance claims for property damage and lost earnings, changing global and regional economic conditions, and legislative, regulatory and political developments. Further information regarding these and other factors is included in the filings by the company with the U.S. Securities and Exchange Commission.
***
5
Orient-Express Hotels will conduct a conference call tomorrow, August 3, 2006 at 10.00 AM (EDT) which is accessible at 1 866 224 2972 (US toll free) or +44 1452 568 061 (Standard International access). A re-play of the conference call will be available until 5.00 PM (EDT) Wednesday, August 9, 2006 and can be accessed by calling 1 866 247 4222 (US toll free) or +44 1452 550 000 (Standard International #) and entering replay access number 3589638. A re-play will also be available on the company’s website: www.orient-expressinvestorinfo.com.
6
ORIENT-EXPRESS HOTELS LTD
Three Months ended June 30, 2006
SUMMARY OF OPERATING RESULTS
| | Three months ended
June 30 | |
$’000 — except per share amount | | 2006 | | 2005 | |
Revenue and earnings from unconsolidated companies | | | | | |
Owned hotels | | | | | |
- Europe | | 61,192 | | 54,688 | |
- North America | | 22,981 | | 23,439 | |
- Rest of World | | 22,383 | | 20,229 | |
Hotel management & part ownership interests | | 6,274 | | 5,687 | |
Restaurants | | 5,728 | | 5,904 | |
Trains & Cruises | | 21,396 | | 20,578 | |
Total (1) | | 139,954 | | 130,525 | |
| | | | | |
Analysis of earnings | | | | | |
Owned hotels | | | | | |
- Europe | | 24,268 | | 21,082 | |
- North America | | 5,494 | | 5,336 | |
- Rest of World | | 3,564 | | 2,944 | |
Hotel management & part ownership interests | | 6,274 | | 5,687 | |
Restaurants | | 1,491 | | 1,638 | |
Trains & Cruises | | 5,362 | | 5,166 | |
Central overheads | | (5,355 | ) | (4,654 | ) |
Gain on sale of investment | | 6,619 | | — | |
EBITDA | | 47,717 | | 37,199 | |
Depreciation & amortization | | (9,296 | ) | (8,632 | ) |
Interest | | (9,981 | ) | (6,726 | ) |
Foreign exchange | | (3,478 | ) | 495 | |
Earnings before tax | | 24,962 | | 22,336 | |
Tax | | (5,090 | ) | (3,879 | ) |
Net earnings on common shares | | 19,872 | | 18,457 | |
| | | | | |
Earnings per common share | | 0.50 | | 0.47 | |
| | | | | |
Number of shares – millions | | 39.47 | | 39.31 | |
(1) Comprises earnings from unconsolidated companies of $5,249,000 (2005 - $4,273,000) and revenue of $134,705,000 (2005 - $126,252,000).
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ORIENT-EXPRESS HOTELS LTD
Three Months Ended June 30, 2006
SUMMARY OF OPERATING INFORMATION FOR OWNED HOTELS
| | Three months ended
June 30 | |
| | 2006 | | 2005 | |
Average Daily Rate (in U.S. dollars) | | | | | |
Europe | | 627 | | 582 | |
North America | | 320 | | 315 | |
Rest of World | | 248 | | 239 | |
Worldwide | | 417 | | 395 | |
| | | | | |
Rooms Sold (thousands) | | | | | |
Europe | | 57 | | 55 | |
North America | | 39 | | 43 | |
Rest of World | | 49 | | 45 | |
Worldwide | | 145 | | 143 | |
| | | | | |
RevPar (in U.S. dollars) | | | | | |
Europe | | 413 | | 373 | |
North America | | 228 | | 224 | |
Rest of World | | 146 | | 129 | |
Worldwide | | 269 | | 246 | |
| | | | | | Change % | |
| | | | | | Dollar | | Local
Currency | |
Same Store RevPAR (in U.S. dollars) | | | | | | | | | |
Europe | | 397 | | 382 | | 4 | % | 7 | % |
North America | | 303 | | 267 | | 13 | % | 13 | % |
Rest of World | | 145 | | 129 | | 12 | % | 16 | % |
Worldwide | | 269 | | 252 | | 7 | % | 10 | % |
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ORIENT-EXPRESS HOTELS LTD
Six Months ended June 30, 2006
SUMMARY OF OPERATING RESULTS
| | Six months ended June 30 | |
$’000 — except per share amount | | 2006 | | 2005 | |
Revenue and earnings from unconsolidated companies | | | | | |
Owned hotels | | | | | |
- Europe | | 73,577 | | 71,475 | |
- North America | | 45,886 | | 46,932 | |
- Rest of World | | 52,211 | | 45,430 | |
Hotel management & part ownership interests | | 9,644 | | 8,614 | |
Restaurants | | 11,116 | | 11,146 | |
Trains & Cruises | | 29,011 | | 29,142 | |
Total (1) | | 221,445 | | 212,739 | |
| | | | | |
Analysis of earnings | | | | | |
Owned hotels | | | | | |
- Europe | | 17,101 | | 17,958 | |
- North America | | 11,515 | | 11,494 | |
- Rest of World | | 13,141 | | 10,038 | |
Hotel management & part ownership interests | | 9,644 | | 8,614 | |
Restaurants | | 2,589 | | 2,650 | |
Trains & Cruises | | 5,528 | | 5,058 | |
Central overheads | | (9,887 | ) | (9,151 | ) |
Gain on sale of investment | | 6,619 | | — | |
EBITDA | | 56,250 | | 46,661 | |
Depreciation & amortization | | (18,680 | ) | (16,450 | ) |
Interest | | (18,973 | ) | (13,805 | ) |
Foreign exchange | | (2,796 | ) | 4,075 | |
Earnings before tax | | 15,801 | | 20,481 | |
Tax | | (3,540 | ) | (3,581 | ) |
Net earnings on common shares | | 12,261 | | 16,900 | |
| | | | | |
Earnings per common share | | 0.31 | | 0.46 | |
| | | | | |
Number of shares – millions | | 39.44 | | 37.05 | |
(1) Comprises earnings from unconsolidated companies of $7,489,000 (2005 - $5,998,000) and revenue of $213,956,000 (2005 - $206,741,000)
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ORIENT-EXPRESS HOTELS LTD
Six Months Ended June 30, 2006
SUMMARY OF OPERATING INFORMATION FOR OWNED HOTELS
| | Six months ended
June 30 | |
| | 2006 | | 2005 | |
Average Daily Rate (in U.S. dollars) | | | | | |
Europe | | 558 | | 518 | |
North America | | 333 | | 349 | |
Rest of World | | 282 | | 274 | |
Worldwide | | 376 | | 373 | |
| | | | | |
Rooms Sold (thousands) | | | | | |
Europe | | 73 | | 78 | |
North America | | 77 | | 83 | |
Rest of World | | 107 | | 95 | |
Worldwide | | 257 | | 256 | |
| | | | | |
RevPar (in U.S. dollars) | | | | | |
Europe | | 307 | | 294 | |
North America | | 246 | | 239 | |
Rest of World | | 178 | | 158 | |
Worldwide | | 238 | | 225 | |
| | | | | | Change % | |
| | | | | | Dollar | | Local
Currency | |
Same Store RevPAR (in U.S. dollars) | | | | | | | | | |
Europe | | 363 | | 351 | | 4 | % | 7 | % |
North America | | 336 | | 306 | | 10 | % | 10 | % |
Rest of World | | 178 | | 158 | | 13 | % | 16 | % |
Worldwide | | 256 | | 237 | | 8 | % | 11 | % |
10
ORIENT-EXPESS HOTELS LTD
CONSOLIDATED AND CONDENSED BALANCE SHEETS
(UNAUDITED)
$’000 | | June 30
2006 | | December 31
2005 | |
| | | | | |
Assets | | | | | |
| | | | | |
Cash | | 55,937 | | 38,397 | |
Accounts receivable | | 65,980 | | 59,061 | |
Due from related parties | | 18,204 | | 17,549 | |
Prepaid expenses and other | | 16,587 | | 13,061 | |
Inventories | | 32,958 | | 29,636 | |
Real Estate assets | | 15,084 | | 12,149 | |
Total current assets | | 204,750 | | 169,853 | |
| | | | | |
Property plant & equipment, net of accumulated depreciation | | 1,094,652 | | 1,017,175 | |
Investments | | 136,153 | | 129,681 | |
Intangible assets | | 74,271 | | 62,867 | |
Other assets | | 41,316 | | 35,986 | |
| | 1,551,142 | | 1,415,562 | |
| | | | | |
Liabilities and Shareholders’ Equity | | | | | |
| | | | | |
Working capital facilities | | 48,697 | | 47,108 | |
Accounts payable | | 30,534 | | 22,680 | |
Due to related parties | | 3,292 | | 7,374 | |
Accrued liabilities | | 62,680 | | 43,545 | |
Deferred revenue | | 30,158 | | 19,339 | |
Current portion of long-term debt and capital leases | | 82,353 | | 72,151 | |
Total current liabilities | | 257,714 | | 212,197 | |
| | | | | |
Long-term debt and obligations under capital leases | | 566,941 | | 496,156 | |
Deferred income taxes | | 31,262 | | 29,656 | |
Minority interest | | 1,588 | | 4,153 | |
| | | | | |
Shareholders’ equity | | 693,637 | | 673,400 | |
| | 1,551,142 | | 1,415,562 | |
11
