The position of International Hotel Investments plc (IHI) is as follows. It currently has and operates four hotels under the Corinthia name: the San Gorg in Malta, the Nevskij Palace in St Petersburg, the Alfa in Lisbon, and the Grand Hotel Royal in Budapest.

Currently all four hotels are operational and registering "encouraging results". Results for 2004 should show an improvement if only for the lifting of US sanctions which would allow Corinthia's hotels to deal freely with all credit card providers and American reservation networks.

IHI can allocate 150 million shares by the end of 2004 and investors can now include US names, adding enormously to the number and purchasing power of potential investors. During 2005 and 2006, IHI intends to consolidate its operations by maximising its profitability and generating cash flows which would allow it to pay dividends.

Once dividends start being paid, and if IHI is successful in placing the new shares, then it intends to develop the two adjacent properties next to the Nevskij Palace and also acquire two more hotels, one of which would be in a "mature" phase and generating cash flow so that the new acquisition itself supports the dividend being paid.

At this stage, IHI hopes that the value of its shares would start reflecting the enhanced embedded value and it could then seek a listing on a major stock exchange, such as London or Paris. The company expects that such a listing would lead to a better valuation and provideos large investors with more buying and selling opportunities.

The company feels that the development of the property adjacent to the Nevskij, entailing an investment of €75 million with an estimated return of €10 million a year, together with the acquisition of two more hotels would prove to be more attractive to international investors, thus justifying the company's modification of what seemed to be its original plans, namely three or four hotels in countries on a fast development track plus its 20 per cent investments in the Group's CHI (management and marketing services) and Quality Project Management Limited, with the requisite proposed share issues.

IHI's plans were the subject of a recent presentation by the company to stockbrokers and financial intermediaries on its publication of the 2003 preliminary results.

The results themselves are a mixed bag resulting in loss after tax going up from €1.6 million in 2002 to €9.3 million in 2003. Burrowing deeper one is still left looking at an operation which made a basic loss last year but also one which is much better poised for the future than the results suggest. This view seems to tally with that of Alfred Pisani, its chairman, and other board members.

Gross profit at €10.8 million was much in line with that for 2002 but then administrative expenses came out €1.5 million higher. A major item was a €17.8 million impairment loss in accordance with International Accounting Standard 36 which deals with the values at which assets are shown in balance sheets. The impairment loss is related to the carrying amounts of the San Gorg and the Grand Hotel Royal. At the same time, IHI revalued the St Petersburg properties adjacent to the Nevskij by €24.4 million.

There was a one-time write-off relating to the Alfa of €4 million for staff indemnities and pre-opening costs. Compared to 2002, net financing costs increased by more than €4 million while unrealised exchange differences were €1.8 million lower. Loss before tax was nearly €4 million higher for 2003 than 2002, at €5.7 million. The net asset value per share at the end of 2003 is reported by the company to be at €1.10 per share.

During the presentation, Joseph Fenech, managing director, noted that during 2003, only 36 per cent of rooms were operating. The past three years were very difficult for the hotel business in view of 9/11, Iraq, Afghanistan and Sars. More stable conditions, the lifting of sanctions by the US, having all four hotels fully operational and newly refurbished, and the accession of Malta and Hungary to the EU should considerably improve IHI's prospects.

Mr Pisani characteristically pointed to the flip side of the coin: In a sense, IHI was fortunate that during the recent turmoils, when sales were so low, it was building up capacity, while now that things, hopefully, stand to improve, it has all the four hotels at a high standard and ready for business.

Paul V. Azzopardi is managing director of Azzopardi Investment Management Limited (www.azzopardi.com) which is licensed by the MFSA to provide investment services, including stockbroking. This article is only meant to provide information, which the writer believes to be accurate at the time of writing, and is not intended to give investment advice and its contents should not be construed as such. The value of securities, and the currencies in which they are denominated, may go down as well as up. Readers are requested to seek professional financial advice tailored to their own personal circumstances.