TVL FINANCE PLC

YEAR ENDED 31 DECEMBER 2019

REPORT TO NOTEHOLDERS

£440,000,000 SENIOR SECURED FLOATING RATE NOTES DUE 2025

(the “Notes”)
CONTENTS

Highlights 2–6
Operating and financial review for the year and quarter 7 – 18
Risk factors 19
2019 financials (with 2018 comparatives) 20 – 48

Capitalised terms not otherwise defined in this Interim Report shall have the meanings assigned to such terms in the offering
memorandum of TVL Finance PLC relating to the Notes dated 28 June 2019 (the “Offering Memorandum”).

PRESENTATION OF FINANCIAL DATA

The report summarises the consolidated financial data and operating data from the consolidated financial statements of Thame &
London Limited and its subsidiaries (“the Group”) which include TVL Finance PLC. For management reporting purposes we use a 5-
4-4 week accounting calendar. This accounting method divides our fiscal year into four quarters, each comprising two periods of
four weeks and one period of five weeks. We have adopted this accounting method because it allows us to manage our business on
the basis of 52 weekly periods which consistently end on the same weekday and our like-for-like reporting is prepared on this basis.
In order to align this method with our quarterly and statutory annual accounting period on the basis of a calendar year from 1
January to 31 December, we make certain adjustments to our results at the end of each quarter to ensure that the reported period
aligns with the corresponding calendar quarter. The Group will continue to present its consolidated financial statements going
forward on this basis and will apply similar adjustments, in accordance with IFRS, to its interim financial statements.

The summary financial information provided has been derived from our records for the period from 1 January 2019 to 31 December
2019 (prior year from 1 January 2018 to 31 December 2018), which are maintained in accordance with International Financial
Reporting Standards (“IFRS”).

The group has adopted IFRS 16 Leases from 1 January 2019, but has not restated comparatives for the 2018 reporting period as
permitted under the specific transition provisions in the standard. In order to facilitate the comparability of the underlying business
to the prior year following the adoption of IFRS 16, additional columns have been added to reflect the position in line with the
accounting principles applicable to the previous year (“Before IFRS 16”).

We continue to present certain non-IFRS information in this quarterly report. This information includes “EBITDA (adjusted)”, which
represents earnings before interest, tax, depreciation and amortisation as well as non-underlying items (material non-recurring and
one-off in nature) and the rent free adjustment. The impact of IFRS 16 is also excluded from this measure.

Certain financial information, measures and ratios related thereto in this quarterly report, including the financial information
presented on a „before IFRS 16‟ basis and EBITDA (adjusted) (the “Non-IFRS Measures”) are not specifically defined under IFRS or
any other generally accepted accounting principles.

Management believe that EBITDA (adjusted) is meaningful for investors because it provides an analysis of our operating results,
profitability and ability to service debt and because EBITDA (adjusted) is used by the management of the Group to track our
business performance, establish operational and strategic targets and make business decisions.

DISCLAIMER

This report is for information purposes only and does not constitute an offer to sell or the solicitation of an offer to buy securities.
This report does not contain all of the information that is material to an investor.

FORWARD LOOKING STATEMENTS

This report contains “forward-looking statements” as that term is defined by the U.S. federal securities laws and within the meaning
of the securities laws of certain other jurisdictions. These forward looking statements include, without limitation, those regarding
our intentions, beliefs or current expectations concerning our future financial condition or performance, result of operations and
liquidity; our strategy, plans, objectives, prospects, growth, goals and targets; future developments in the markets in which we
participate or are seeking to participate; and anticipated regulatory changes in the industry in which we operate.

These statements often include words such as “anticipate”, “ believe”, “could”, “estimates”, expect”, “forecast”, “intend”, “may”,
“plan”, “projects”, “should”, “suggests”, “targets”, “would”, “will” and other similar expressions. These statements are not
guarantees of performance or results. Many factors could affect our actual financial results or results of operations and could cause
actual results to differ materially from those expressed in the forward-looking forward looking statements and projections.

We undertake no obligation to review or confirm analysts‟ expectations or estimates or to release publicly any revisions to any
forward looking statements to reflect events or circumstances after the date of this report.

1
 TVL Finance plc
Update for the year ended 31 December 2019

Strong results but significant uncertainty ahead

Highlights – year ended 31 December 2019

 Total revenue up 5.0% to £727.9m (2018: £693.3m)

 RevPAR(1) up 0.3% to £41.75 (2018: £41.62)
 RevPAR growth 2.3pts ahead of competitive segment (2)
 Occupancy(1) up 2.1pts to 80.6%
 Average room rate(1) down (2.3)% at £51.82 (2018: £53.01)
 EBITDA(3) £341.3m (under IFRS 16)
 EBITDA (adjusted)(4) up £7.1m to £129.1m
 14 new hotels opened in the year
 Cash position - £89.2m at 31 December 2019
 495 hotels achieving TripAdvisor rating of 4 stars (2018: 444)
 Network size increased by 2.3% to 588 hotels/44,832(5)
 Significant Covid-19 impact from early March

2019 Summary

In 2019, Travelodge has delivered another set of strong results.

The slow UK economy contributed to a 2.0% fall in RevPAR for the STR Midscale and
Economy segment (MSE) as a whole during 2019, with marginally positive RevPAR growth in
London more than offset by very significant RevPAR declines in the Regions.

Notwithstanding these slow trading conditions, our focus on delivering affordable travel
helped us once again outperform our competitors, with full year like-for-like RevPAR up
0.3% on the prior year, more than 2.3% pts above our competitive segment. This
performance was driven by our continued focus on delivering value for money, alongside a
positive customer reaction to our new improved pull-out beds and excellent results from our
new „SuperRooms‟. This focus on moving our customer offer forward helped us achieve
record occupancy levels.

The good like-for-like performance, together with the contribution from our recently opened
new hotels, including the 14 opened during the year, as well as good growth in our Spanish
business, helped increase sales by £34.6m, or 5.0%.

1
Revenue per available room, Average room rate and Occupancy on a UK like-for-like basis
2
Our competitive segment is the Midscale and Economy Sector of the UK hotel market as reported by Smith Travel Research (STR), an independent hotel research
provider, providing aggregate benchmarking information on the UK and other hotel market performance
3
EBITDA = Earnings before interest, tax, depreciation, amortisation and non-underlying items presented on an IFRS basis – including IFRS 16
4
EBITDA (adjusted) = Earnings before interest, tax, depreciation and amortisation, and before rent free adjustment, non-underlying items & reflective of the position
in line with the accounting principles applicable to the previous year for purposes of comparability (before IFRS 16). Non-underlying items have been removed as
they relate to non-recurring, one-off items
5
Increase in rooms from 31 December 2018 to 31 December 2019

2
We did continue to face cost pressures during the year, including rising energy costs and the
impact of the National Living Wage. We put in place an extensive programme of investments
to reduce our carbon footprint and boost energy efficiency, alongside other productivity
measures, and these helped us to maintain margins.

Overall EBITDA was up £7.1m to £129.1m (2018: £122.0m), our sixth year of growth in
profitability.

Financial Performance

For the year ended 31 December 2019:

UK like-for-like RevPAR was up 0.3% to £41.75, 2.3pts ahead of the growth rate of the STR
MSE segment, which was down 2.0%(6). This strong relative outcome was delivered by
balancing strong growth in UK like-for-like occupancy of 2.1pts to 80.6%, with a reduction in
UK like-for-like average room rate of 2.3% to £51.82 (2018: £53.01).

The contribution from our new and maturing hotels (the 17 maturing hotels opened in 2018
and the 14 new hotels opened in the year), higher food and beverage sales and the 0.3% UK
like-for-like RevPAR growth, together with good growth in Spain, resulted in total revenue
increasing 5.0% for the year to £727.9m.

This good revenue growth has helped to mitigate the significant cost increases we continue
to face, including the further increases in the National Living Wage, general inflationary cost
pressures and increased operating costs as a result of our improved occupancy. We also
benefited from cost efficiency programmes and initiatives in a number of areas. EBITDA
(adjusted) of £129.1m was up £7.1m on the prior year.

Closing cash at the year end was £89.2m and we also benefit from our long-term facilities
including a £40m RCF with July 2024 maturity, which was fully drawn on 17 March 2020 and
a new £60m RCF with May 2022 maturity, which remains undrawn.

For the quarter ended 31 December 2019:

UK like-for-like RevPAR was up 1.1% to £41.47, 2.9pts ahead of the growth rate of the STR
MSE segment, which was down 1.8%(7) for the same period.

Total revenue growth in the quarter of 4.4% to £181.8m was driven mainly by our new and
maturing hotels (the 17 maturing hotels opened in 2018 and the 14 new hotels opened in
the year), the good UK like-for-like RevPAR growth and higher food and beverage sales,
helped by our improved occupancy, and good growth in Spain.

This good revenue growth combined with the benefit from cost efficiency programmes and
initiatives in a number of areas have offset the cost pressures we continue to face alongside
the wider sector as a whole. EBITDA (adjusted) was up £2.9m to £26.9m.

Operational Update

We continued to make good progress towards our aim of becoming the favourite hotel for
value, by delivering our customers a combination of location, price and quality that suits
their travel needs.

6
STR MS&E RevPAR growth 27 Dec 18 to 25 Dec 19
7
STR MS&E RevPAR growth 26 Sep 19 to 25 Dec 19
3
Location

We successfully opened 14 new hotels in 2019 further enhancing our network with a mix of
key cities and regional towns. These openings included two further new build „Travelodge
Plus‟ hotels in Marlow, Buckinghamshire and Edinburgh.

At the end of 2019 our network stood at 588 hotels across the UK, Ireland and Spain and we
have opened a further 3 hotels since the year end.

Price

We continued to stay true to our mission to deliver affordable travel for everyone. We
maintained highly competitive pricing throughout the year, winning further levels of business
customers through our business membership programme and continued to see excellent
occupancy levels, especially at weekends where we benefited from the trend for more
frequent short-breaks and high occupancy in our family rooms. We extended our choice of
rates, with availability of both saver and fully flexible rates, and bundled dinner, bed and
breakfast and rates for business customers looking to manage expenses.

Quality

We have been on a significant drive to improve quality over the last five years and this
continued throughout 2019. We invested in further modernisation of our hotels, with a
£17m investment programme during the year, adding USB ports by the bedside and
upgrading to more energy efficient LED lighting, alongside investments to introduce
upgraded, higher quality pull-out beds in our family rooms. Two years ago we led the
industry with the launch of our premium economy 'SuperRooms' adding that little bit more
choice for customers. These are now present in 51 hotels (1,813 rooms) across the UK and
have been well received by both business and leisure customers alike. We also launched our
first Travelodge Plus hotels, which offer a stylish new look and a new restaurant design that
includes laptop power and social spaces for groups. During the year we added two further
hotels, in the Thames Valley and in Edinburgh, bringing the total to eight. Supported by
these initiatives, and the work of our nearly 12,000 colleagues across the country, our
average TripAdvisor rating sits at 4 stars and we received a record 325 TripAdvisor
Certificates of Excellence, an increase of 101 from the previous year.

Strategy Update

Our record results in 2019 brought us to the end of our initial five year strategic plan to build
a new Travelodge.

During that period the business has undergone a significant transformation.

For our customers, we have now invested more than £150m in modernising our hotels,
installing the new Travelodge Dreamer beds in every hotel, replacing outdated sofa beds
with new separate pull-out beds for children and introducing a new-look design. We added
additional choice, leading the industry with the launch of „SuperRooms‟ and Travelodge
Plus. We extended our food and beverage offer with wider choice and healthier options. We
also launched our Travelodge Business Membership, which offers expense controls and
special rates to small and medium sized businesses looking to get the most from their travel
budgets.

For our teams, we ended the outsourcing of housekeeping, bringing all our housekeeping
colleagues into the Travelodge family. We abolished zero hour contracts, and introduced

4
guaranteed minimum hours. We extended our Aspire management development
programme and are proud that the vast majority of our hotel managers began their careers
as entry-level colleagues and have significantly improved their careers with us. We
continued to work on flexible hours, including our high profile campaigns to attract working
parents back into the workforce and to allow students to combine a few hours work in their
university location during term time with extended hours closer to home during
vacations. Our focus on equality and diversity has helped us to a leading position where the
majority of our hotel managers are women and we are ahead of industry benchmarks on
diversity more widely.

For the communities we serve, we have continued to build our new hotels in a range of
architectural styles, to better blend in with the local environment, and the addition of more
than 75 new hotels since 2013 has directly created more than 2,000 new jobs right across
the UK, with many more indirectly in architecture, construction and other trades. We have
long been committed to further improvements in reducing environmental impact, removing
plastic bottled toiletries more than 5 years ago, removing single use plastic cups and
maintaining a rolling multi-million pound programme of investment in energy efficiency that
is both reducing our impact and reducing our costs.

All these changes have helped us to deliver growth in sales, outperformance compared to
our rivals and improved profitability for each of the last five years, and we have been ranked
as one of Britain's top ten fastest growing private businesses for each of the last three years
in the FastTrack survey.

The improvement in our performance is indicated by the growth in our key metrics:

2013 2019 Increase

RevPAR £29.36 £41.75 + £12.39

Total Revenue £432.6m £727.9m + £295.3m

EBITDA £40.5m £129.1m + £88.6m

Network size (rooms) 38,295 44,832 + 6,537 rooms

Accounting Standards Update

The group has adopted IFRS 16, a new lease accounting standard, from 1 January 2019. The
new standard has no economic impact on the business and will not change the way the
business is run.

It has, however, had a significant impact on the presentation of the financial statements
including reported EBITDA, reported profit before tax and the balance sheet treatment of
leasehold obligations. As at 31 December 2019, the standard increased EBITDA(9) by
£214.5m and increased the reported loss for the year (before non-underlying items) by
£(54.7)m. Non-current assets (excluding deferred tax) have increased by £2.3bn,
representing the right of use relating to leasehold obligations, and liabilities have increased
by £(2.5)bn, representing the discounted value of future lease liabilities. The right of use
asset is subject to annual impairment reviews and in 2019 an impairment loss of £14.1m
has been recognised in non-underlying costs.

5
In implementing IFRS 16, the financial statements have been prepared under the modified
retrospective approach under which comparative results are not restated. Accordingly, in
order to facilitate comparability to the previously reported results, the financial statements
include, where applicable, a reconciliation of the IFRS 16 result to the „before IFRS 16‟(10)
result.

Notes

Thame and London Limited is currently discussing the audit of its financials for the year
ended 31 December 2019 with its auditors. On 26 March 2020, the Financial Conduct
Authority in the United Kingdom published a statement permitting a delay in the publication
of audited annual financial reports for companies listed on regulated exchanges in the United
Kingdom from four to six months from the end of the financial year. This policy is intended
to be temporary while the United Kingdom faces the extreme disruption of the coronavirus
pandemic and its aftermath, and recognises that some companies may have difficulties
compiling audited financials while the current stay-at-home guidelines are in place, and also
recognises that auditors may need additional time to assess the impact of the COVID-19
outbreak on the going concern analysis. Although the group is not listed, the auditors and
the group are continuing to review the significant uncertainty surrounding the impact of the
COVID-19 outbreak on the group‟s liquidity, and this uncertainty may affect the auditor‟s
ability to deliver an audit opinion that is unqualified based on the going concern basis of
accounting.

The group has received consents from bondholders and lenders to permit publication of the
Annual Report to be delayed until 31 July 2020.

About Travelodge

Founded in 1985, Travelodge is one of the UK‟s leading hotel brands. There were 588
Travelodge hotels and 44,832 rooms in the UK, Ireland and Spain as at 31 December 2019.
Travelodge welcomes approximately 19 million customers every year and over 11,500
colleagues worked across the business at the end of 2019.

Notes:

Financial results in this summary document are extracts from the management reporting of Thame and
London Limited and its subsidiary companies, including Travelodge Hotels Limited. All financial
references in this summary document are unaudited.

Smith Travel Research (STR) is an independent hotel research provider, providing aggregate
benchmarking information on the UK and other hotel market performance.

For further information, please contact:

Travelodge Investor Relations

01844 358655
[email protected]
Travelodge Press Office
01844 358 703
[email protected]

9
EBITDA – Earnings before interest, tax, depreciation, amortisation and non-underlying items.

10
Before IFRS 16 - In order to facilitate the comparability of the underlying business to the prior year following the adoption of IFRS 16 on 1 January 2019, additional
columns have been added to reflect the position in line with the accounting principles applicable to the previous year.

6
OPERATING AND FINANCIAL REVIEW

Unaudited results of operations for the year ended 31 December 2019

Results for the Group are for the full year ended 31 December 2019, with comparatives for
the full year ended 31 December 2018.

Results are shown below, including the impact of the new IFRS 16 lease accounting.

In order to facilitate the comparability of the underlying business to the prior year following
the adoption of IFRS 16 on 1 January 2019, additional columns have been added to reflect
the position in line with the accounting principles applicable to the previous year:

Year ended
31 December
Year ended 31 December 2019 2018
Comparable
to 2018 2018
Reported Reported Variance
Results Results (2018 vs
2019
Before IFRS 16 before IFRS
IFRS 16(1) impact Statutory Statutory 16(1 )) Var
£m £m £m £m £m %

Revenue by geographical region

Revenue 727.9 - 727.9 693.3 34.6 5.0%
Revenue UK 713.1 - 713.1 680.1 33.0 4.9%
Revenue International 14.8 - 14.8 13.2 1.6 12.1%

Key income statement items

Revenue 727.9 - 727.9 693.3 34.6 5.0%

Operating expenses (390.0) - (390.0) (374.4) (15.6) (4.2)%

Of which cost of goods sold (43.1) - (43.1) (42.6) (0.5) (1.2)%
Of which employee costs (173.9) - (173.9) (165.6) (8.3) (5.0)%
Of which other operating expenses (173.0) - (173.0) (166.2) (6.8) (4.1)%
Net external rent payable (208.8) 212.2 3.4 (196.9) (11.9) (6.0)%

EBITDA (adjusted)(2) / EBITDA(3) 129.1 (2)

212.2 341.3 (3)
122.0 7.1 5.8%
Rent free adjustment (4 ) (2.3) 2.3 - (1.9) (0.4) (21.1)%
Depreciation (44.6) (117.7) (162.3) (42.2) (2.4) (5.7)%
Amortisation (17.5) 11.8 (5.7) (16.6) (0.9) (5.4)%
Operating profit (before non-underlying
64.7 108.6 173.3 61.3 3.4 5.5%
items)
Finance costs before investor loan interest (38.0) (163.3) (201.3) (39.3) 1.3 3.3%
Investor loan interest (14.3) - (14.3) (14.3) - -
Finance income 0.7 - 0.7 0.9 (0.2) (22.2)%
Profit / (Loss) for the year (before non-
13.1 (54.7) (41.6) 8.6 4.5 52.3%
underlying items)

Non-underlying items (34.1) 3.2 (30.9) (13.7) (20.4) (148.9)%

Loss for the year before tax (21.0) (51.5) (72.5) (5.1) (15.9) (311.8)%

Income tax 10.3 (5.5) 4.8 0.9 9.4 1044.4%

Loss for the year (10.7) (57.0) (67.7) (4.2) (6.5) (154.8)%

(1) – Before IFRS 16 - In order to facilitate the comparability of the underlying business to the prior year following the adoption of IFRS 16 on 1
January 2019, additional columns have been added to reflect the position in line with the accounting principles applicable to the previous year.

(2) - EBITDA (adjusted) = Earnings before interest, tax, depreciation and amortisation, and before rent free adjustment, non-underlying items
and reflective of the position in line with the accounting principles applicable to the previous year for purposes of comparability (before IFRS
16). Non-underlying items have been removed as they relate to non-recurring, one-off items.

(3) - EBITDA = Earnings before interest, tax, depreciation, amortisation and non-underlying items.

(4) - In many of our leases we receive a rent free period at the beginning of the lease term. Under IFRS, the benefit of this rent free period is
held as an accrual on our balance sheet and is recognised in our income statement as a deduction to the actual rent expense in each period, on a
straight line basis, over the full life of the lease. As a result, our IFRS rent expense does not reflect our cash payments of rent in any period.
EBITDA in each period recognises the portion of the credit attributable to such period as if such credit were applied on a straight line basis until
the next rent review, normally five years, which is the measure which is used for internal management reporting.

7
Revenue

Revenue increased by £34.6m, or 5.0%, from £693.3m for the year ended 31 December
2018 to £727.9m for the year ended 31 December 2019, with a good contribution from our
recently opened new hotels, including the 14 opened in 2019 and the maturing 17 new
hotels opened in 2018, including London City which continues to perform strongly.

Like-for-like UK RevPAR growth of 0.3% was ahead of the STR MSE segment by 2.3pts,
which showed a decline of (2.0)%. We also achieved good revenue growth in Spain (up
12.1%), delivered through an 11% increase in like-for-like average room rate to €77.25 and
a 1.6pt improvement in occupancy levels. UK food and beverage sales benefited from menu
optimisation and occupancy growth.

Operating expenses

Operating expenses increased by £15.6m, or 4.2%, from £374.4m for the year ended 31
December 2018 to £390.0m for the year ended 31 December 2019. Cost increases were
predominantly driven by increased costs from our new and maturing hotels opened since
2018, together with higher operational costs as a result of the cost pressures facing the
sector as a whole and occupancy growth.

The group continued to identify and implement cost saving initiatives during the year with
hotel cost efficiency programmes delivering savings across wages, laundry and
maintenance. These efficiencies helped to partially offset the wider sector cost pressures.

Increases in cost of goods sold mainly reflect increased costs from our new and maturing
hotels, partly offset by savings in like-for-like laundry and food and beverage costs.

Employee cost increases reflect the impact of the National Living Wage and pension auto-
enrolment in the like-for-like estate and the additional staff in our new and maturing hotels.

Increases in other operating expenses are largely driven by our new and maturing hotels as
well as customer acquisition costs in line with revenue and higher banking charges and fees
in line with increased revenue and the increased mix of credit card payments.

Net external rent payable

Net external rent payable (before rent free adjustment and before IFRS 16(1)) increased by
£11.9m, or 6.0%, from £196.9m for the year ended 31 December 2018 to £208.8m for the
year ended 31 December 2019. This increase was primarily due to 14 new hotel openings
during the year, the annualisation of new hotel openings in 2018 and upwards only rent
reviews predominantly linked to RPI.

In many of our leases we receive a rent free period at the beginning of the lease term. Prior
to IFRS 16, the benefit of this rent free period is held as accrued income on our balance
sheet and is recognised in our income statement as a deduction to the actual rent expense
in each period, on a straight line basis, over the full life of the lease. As a result, our rent
expense does not reflect our cash payments of rent in any period. EBITDA (adjusted) in each
period recognises the portion of the credit attributable to such period as if such credit were
applied on a straight line basis until the next rent review, normally five years, which is the
measure which is used for internal management reporting.

(1) – Before IFRS 16 - In order to facilitate the comparability of the underlying business to the prior year following the adoption of IFRS 16 on 1 January
2019, additional columns have been added to reflect the position in line with the accounting principles applicable to the previous year.

8
On adoption of IFRS 16, the group recognised lease liabilities in relation to leases which had
previously been classified as 'operating leases' under the principles of IAS 17 Leases.

The rent payable for operating leases previously reported under IAS 17, within EBITDA
(adjusted), has been replaced by depreciation of the right-of-use asset and notional
financing costs on the lease liability.

Depreciation / Amortisation

Depreciation (before IFRS 16(1)) increased by £2.4m, or 5.7%, from £42.2m for the year
ended 31 December 2018 to £44.6m for the year ended 31 December 2019. This is mainly
due to new hotel openings and ongoing investment in the maintenance and refurbishment of
our estate, including upgrading our hotels to offer SuperRooms, Travelodge Plus and
improved Wi-Fi. Energy efficiency investments, principally in LED lighting and heating
controls, continued throughout the year and also contributed to the increased depreciation
charge.

Amortisation (before IFRS 16(1)) increased by £0.9m, or 5.4%, from £16.6m for the year
ended 31 December 2018 to £17.5m for the year ended 31 December 2019. This is mainly
due to ongoing website development.

Following the adoption of IFRS 16 on 1 January 2019, depreciation has increased by

£117.7m, reflecting a charge for the right of use assets, and amortisation has decreased by
£(11.8)m, reflecting a reclassification of leasehold premiums to right of use assets.

Finance costs

Finance costs before investor loan interest (before IFRS 16(1)) decreased by £1.3m, or 3.3%,
from £39.3m for the year ended 31 December 2018 to £38.0m for the year ended 31
December 2019. This decrease was primarily due to the lower bond interest costs following
the refinancing in July 2019, partially offset by the impact of an increase in LIBOR.

Following the adoption of IFRS 16 on 1 January 2019, a notional additional finance cost of
£163.3m has been incurred relating to the lease liabilities.

Finance income

Finance income of £0.7m for the year ended 31 December 2019 was bank interest received.
Finance income of £0.9m for the year ended 31 December 2018 was also bank interest
received and included amounts received in respect of 2017.

Non-underlying items

Non-underlying items (before taxation and the impact of IFRS 16(1)) of £34.1m for the year
ended 31 December 2019 includes £15.0m for the impairment of intangible assets and
property plant and equipment, together with a net onerous lease provision reassessment of
£3.0m and £0.8m related to management incentives with respect to the restructuring of the
Group‟s debt and other exceptional corporate activities, together with break costs of £9.9m
and charges of £5.4m relating to the write off of unamortised loan issue costs following the
repayment of the fixed rate and floating rate bonds.

(1) – Before IFRS 16 - In order to facilitate the comparability of the underlying business to the prior year following the adoption of IFRS 16 on 1 January
2019, additional columns have been added to reflect the position in line with the accounting principles applicable to the previous year.

9
The application of IFRS 16 results in non-underlying items reducing by £3.2m, due mainly to
the reversal of the net onerous lease provision reassessment of £3.0m as rent is no longer
charged under IFRS 16, together with a £0.2m reduction to the impairment charge given the
different basis of impairment testing, bringing the total statutory impairment charge to
£14.8m for the year. Statutory non-underlying items (before taxation) consist of the £14.8m
impairment charge together with the £16.1m of items in connection with the restructuring of
the Group‟s debt which are unaffected by the adoption of IFRS 16.

Non-underlying items (before taxation) of £13.7m for the year ended 31 December 2018
included £6.7m for the impairment of fixed assets, £6.6m for charges in respect of the costs
of early redemption (which includes a charge of £0.5m relating to the release of prepaid fees
following the partial repayment of the fixed rate bond), legal and advisors‟ fees and
management incentives relating to the restructuring of the Group‟s debt, and other
exceptional corporate activities. Also included is £3.4m of additional provisions recognised,
less a provision reassessment release of £2.3m, a £0.8m loss relating to the surrender of
the lease at the closed Gatwick Airport hotel and an inflow of £1.5m relating to the
surrender of the lease at Cambridge Lolworth.

Loss Before Tax

Statutory loss before tax is £72.5m for the year, £67.4m higher than the previous year. This
is mainly driven by the adverse non-cash impact of IFRS 16 this year of £54.7m and
additional non-underlying costs compared to the prior year. The increase in non-underlying
costs of £17.2m comprise an increase of £8.1m in respect of cash costs mainly related to the
refinancing and £9.1m non-cash costs mainly due to impairment charges, compared to the
previous year.

Taxation

Income tax is recognised based on management's best estimate of the income tax rate
expected for the financial year, which includes the impact of recently enacted legislation in
relation to hybrid mismatches, corporate interest restriction and amendments to the use of
carried forward losses.

There was an overall income tax credit of £4.8m for the year ended 31 December 2019
(current tax credit: £1.4m; deferred tax credit: £3.4m). There was an overall income tax
credit of £0.9m for the year ended 31 December 2018 (current tax charge: £1.9m; deferred
tax credit: £2.8m).

The current tax credit of £1.4m for the year ended 31 December 2019 arose as a result of a
prior year adjustment of £1.6m (credit), partially offset by a £0.2m current year overseas
tax charge relating to taxable profits arising from Spanish operations and is not impacted by
IFRS 16.

The deferred tax credit of £3.4m for the year ended 31 December 2019 comprises a current
year credit of £2.7m and a £0.7m credit from the effect of changes in tax rates. The
deferred tax credit of £3.4m primarily arises as a result of the recognition of a deferred tax
asset this year in respect of Spanish historic losses.

Cash tax payments of £1.4m (UK £0.8m, Spain £0.6m) were made during the year (2018:
£0.7m).

10
IFRS 16

As a result of the adoption of IFRS 16 on 1 January 2019, rent payable for operating leases
of £212.2m, the rent free adjustment of £2.3m and amortisation of lease premiums of
£11.8m have been replaced by depreciation of the right to use assets of £117.7m and a
notional financing cost of £163.3m relating to the lease liabilities.

The impact of the application of IFRS 16 results in a reduction of non-underlying charges of

£3.2m, being the reversal of the onerous lease provision of £3.0m not required under IFRS
16 and a £0.2m reduction to the impairment charge, bringing the total statutory impairment
charge to £14.8m for the year.

Cash flow

As at 31 December 2019, we had cash of £89.2m, an increase of £7.4m compared to

£81.8m as at 31 December 2018.

For the year ended 31 December 2019 Net cash generated from operating activities (before
IFRS 16(1)) of £111.6m (which is after rent paid of £223.9m), was partially offset by net
cash used in investing activities of £65.3m, which relates to the purchase of intangible and
tangible fixed assets of £65.9m less interest received of £0.6m, and net cash used in
financing activities (before IFRS 16(1)) of £38.9m (which excludes rent paid).

Included in net cash used in financing activities (before IFRS 16(1)) of £38.9m was the
repayment in July 2019 of the existing senior secured 8.5% fixed rate sterling denominated
notes of £232.0m and senior secured LIBOR + 4.875% floating rate sterling denominated
notes of £195.0m, offset by the issue of new senior secured LIBOR + 5.375% floating rate
sterling denominated notes of £440.0m and refinancing transaction costs of £18.5m;
together with bond interest payments and finance fees of £28.9m and finance lease interest
payments of £4.5m.

Free Cash Flow (as defined in note 1 to the Cash Flow Statement as being EBITDA
(adjusted), less Working capital cash flows (before non-underlying items and before IFRS
16(1)) and Capital expenditure) decreased from £67.9m for the year ended 31 December
2018 to £55.8m for the year ended 31 December 2019. The year on year increase in
EBITDA (adjusted) was more than offset by the adverse timing impact on working capital
cash flows as a result of our VAT quarter dates (which are aligned to our 5/4/4 week
management accounting periods) and increased Capital expenditure reflecting our refit
programme and investments in IT and energy efficiency projects.

Our cash cycle reflects the monthly payment of creditors and staff and fluctuates throughout
the quarter with rent paid quarterly in advance around the end of each quarter. As a result,
our quarterly cash position is generally at a low just after the end of March, June, September
and December following payment of the quarterly rent bill, monthly creditor payments and
payroll.

The table below sets out certain line items from our consolidated cash flow statement for the
year ended 31 December 2019 and the year ended 31 December 2018. In order to allow
meaningful comparison to the prior year, the commentary and variances below are
presented on a „before IFRS 16(1)‟ basis.

(1) – Before IFRS 16 - In order to facilitate the comparability of the underlying business to the prior year following the adoption of IFRS 16 on 1 January
2019, additional columns have been added to reflect the position in line with the accounting principles applicable to the previous year.

11
 Year ended 31
Year ended 31 December 2019 December 2018

Comparable to 2018
2018 Reported Reported
Variance
Results Results
2018 vs
2019
Before IFRS 16 before
IFRS 16(1) impact Statutory Statutory IFRS 16(1) Var
£m £m £m £m £m %

Net c ash generated from operating ac tivities 111.6 223.9 335.5 116.4 (4.8) (4.1)%
Net c ash used in investing ac tivities (65.3) - (65.3) (58.2) (7.1) (12.2)%
Net c ash used in financ ing ac tivities (38.9) (223.9) (262.8) (71.4) 32.5 45.5%

Net increase in aggregate cash and cash

7.4 - 7.4 (13.2) 20.6 156.1%
equivalents

Cash and c ash equivalents at beginning of the

81.8 - 81.8 95.0 (13.2) (13.9)%
period
Cash and cash equivalents at the end of the
89.2 - 89.2 81.8 7.4 9.0%
period

Net cash generated from operating activities

Net cash generated from operating activities (before IFRS 16(1)) decreased by £4.8m, or
4.1%, from £116.4m for the year ended 31 December 2018 to £111.6m for the year ended
31 December 2019. This was due to a £3.1m decrease in operating profit (after non-
underlying items, before IFRS 16(1)), a £12.6m decrease in working capital and an increase
in corporation tax payments of £0.7m, partially offset by an increase in depreciation and
amortisation of £3.3m and increase in impairment of fixed assets of £8.3m.

Following the adoption of IFRS 16 on 1 January 2019, net cash generated from operating
activities has increased by £223.9m reflecting rent paid on operating leases during the year,
which is now reported as net cash used in financing activities.

Working capital requirements

Inventory primarily includes food and beverage products sold through our bar cafes. Trade
and other receivables (before IFRS 16(1)) primarily consist of rent prepayments as we pay
quarterly in advance. We have low trade receivables as most of our customers pay at the
time of booking, however, business customers taking advantage of our business account
card benefit from interest free credit.

Liabilities to trade and other creditors include prepaid room purchases from customers who
have yet to stay. Other current liabilities include normal trade creditors, including rent
(before IFRS 16(1)), accrued wages and salaries, other current debts and accrued interest
and taxes.

Year ended 31
Year ended 31 December 2019 December 2018

Comparable to 2018
2018 Reported Reported
Results Results Variance
2018 vs
2019
Before IFRS 16 before
IFRS 16(1) impact Statutory Statutory IFRS 16(1) Var
£m £m £m £m £m %

Inc rease in inventory (0.1) - (0.1) (0.1) - -

Inc rease in rec eivables (6.9) 1.4 (5.5) (4.7) (2.2) (46.8)%
Inc rease / (Dec rease) in payables 1.9 5.3 7.2 11.6 (9.7) (83.6)%

Total working capital movement (before

non-underlying items) (5.1) 6.7 1.6 6.8 (11.9) (175.0)%

Provisions and non-underlying items (4.9) (0.3) (5.2) (4.2) (0.7) (16.7)%

Total working capital movement (10.0) 6.4 (3.6) 2.6 (12.6) (484.6)%

(1) – Before IFRS 16 - In order to facilitate the comparability of the underlying business to the prior year following the adoption of IFRS 16 on 1 January
2019, additional columns have been added to reflect the position in line with the accounting principles applicable to the previous year.

12
Working capital outflow before non-underlying items (before IFRS 16(1)) of £5.1m for the
year ended 31 December 2019 compared to an inflow of £6.8m for the year ended 31
December 2018 is impacted by the relative timing of our VAT return quarters (which align
with our 5/4/4 week management accounting periods). At the end of our third quarter,
rents were paid on time, but this fell after the end of our third quarter VAT return period and
so the VAT of c. £8m was reclaimed in our fourth quarter VAT return, reducing payables at
the year end. The cash impact reversed in the first quarter of 2020.

Working capital outflow for non-underlying items (before IFRS 16(1)) of £4.9m for the year
ended 31 December 2019 compared to an outflow of £4.2m for the year ended 31 December
2018 is mainly impacted by payment of legal and advisors‟ fees and management incentives
relating to the restructuring of the Group‟s debt and other exceptional corporate activities.

Following the adoption of IFRS 16 on 1 January 2019, cash flows relating to rent are now
reported within Net cash used in financing activities. Under IFRS 16 working capital outflows
before non-underlying items reduced by £6.7m due to working capital movements
associated with rent payments, to leave a £1.6m inflow.

The £0.3m increase in cash outflows from provisions and non-underlying items under IFRS
16 relates to the reversal of the £3.0m onerous lease provision reassessment offset by the
reversal of the £2.7m cash spend on onerous lease provisions, as rent is no longer charged
under IFRS 16.

Net cash used in investing activities

Net cash used in investing activities increased by £7.1m, or 12.2%, from £58.2m for the
year ended 31 December 2018 to £65.3m for the year ended 31 December 2019, primarily
due to changes in capital expenditure.

Capital expenditure

Capital expenditure of £65.9m in the year ended 31 December 2019 has mainly been in
relation to on-going maintenance and refits. We expect to refit the entire estate over a 7 to
8 year period, with interim works as appropriate in the heavier use hotels. Investment in IT
and energy efficiency projects as well as development pipeline spending, have also
contributed to spending.

Net cash used in financing activities

Net cash used in financing activities (before IFRS 16(1)) decreased by £32.5m, or 45.5%,
from £71.4m for the year ended 31 December 2018 to £38.9m for the year ended 31
December 2019. This was primarily due to the repayment of accrued interest on the investor
loan of £34.6m in 2018.

In addition, a net inflow of £13.0m from the issue of new floating rate bonds and repayment
of the old fixed and floating rate bonds in July 2019, compared to a net inflow of £1.0m from
the previous refinancing in 2018 and lower interest costs and finance fees of £3.6m, partially
offset by £17.7m additional outflows in relation to refinancing transaction costs.

Following the adoption of IFRS 16 on 1 January 2019, Net cash used in financing activities
has increased by £223.9m reflecting rent paid during the year, which was previously
reported within net cash generated from operating activities.
(1) – Before IFRS 16 - In order to facilitate the comparability of the underlying business to the prior year following the adoption of IFRS 16 on 1 January
2019, additional columns have been added to reflect the position in line with the accounting principles applicable to the previous year.

13
Corporation tax

Corporation tax payments on account of £1.4m (UK £0.8m, Spain £0.6m) were made in the
year ended 31 December 2019 compared to £0.7m in the year ended 31 December 2018.

IFRS 16

Following the adoption of IFRS 16 on 1 January 2019, Net cash generated from operating
activities has increased by £223.9m, with a corresponding increase in cash used in financing
activities, reflecting rent paid during the year. Actual total pre-tax cash payments relating to
operating leases are not impacted by the adoption of IFRS 16.

14
OPERATING AND FINANCIAL REVIEW

Unaudited results of operations for the quarter ended 31 December 2019 (Q4)

Results for the Group are for the quarter ended 31 December 2019, with comparatives for
the quarter ended 31 December 2018.

Results are shown below, including the impact of the new IFRS 16 lease accounting.

In order to facilitate the comparability of the underlying business to the prior period
following the adoption of IFRS 16 on 1 January 2019, additional columns have been added to
reflect the position in line with the accounting principles applicable to the previous year:

Quarter
ended 31
December
Quarter ended 31 December 2019 2018

Comparable
to 2018 2018
Reported Reported Variance
Results Results (2018 vs
2019
Before IFRS 16 before IFRS
IFRS 16(1) impact Statutory Statutory 16(1 )) Var
£m £m £m £m £m %

Revenue by geographical region

Revenue 181.8 - 181.8 174.1 7.7 4.4%
Revenue UK 178.2 - 178.2 170.9 7.3 4.3%
Revenue International 3.6 - 3.6 3.2 0.4 12.5%

Key income statement items

Revenue 181.8 - 181.8 174.1 7.7 4.4%

Operating expenses (102.0) - (102.0) (99.5) (2.5) (2.5)%

Of which cost of goods sold (10.7) - (10.7) (10.8) 0.1 0.9%
Of which employee costs (45.4) - (45.4) (44.6) (0.8) (1.8)%
Of which other operating expenses (45.9) - (45.9) (44.1) (1.8) (4.1)%
Net external rent payable (52.9) 53.3 0.4 (50.6) (2.3) (4.5)%
(2) (3) (2) (3)
EBITDA (adjusted) / EBITDA 26.9 53.3 80.2 24.0 2.9 12.1%
Rent free adjustment (4 ) (0.6) 0.6 - (0.5) (0.1) (20.0)%
Depreciation (11.6) (29.8) (41.4) (11.4) (0.2) (1.8)%
Amortisation (4.6) 2.9 (1.7) (4.1) (0.5) (12.2)%
Operating profit (before non-underlying
10.1 27.0 37.1 8.0 2.1 26.3%
items)
Finance costs before investor loan interest (9.8) (41.6) (51.4) (10.2) 0.4 3.9%
Investor loan interest (3.8) - (3.8) (3.7) (0.1) (2.7)%
Finance income 0.2 - 0.2 0.3 (0.1) (33.3)%
Loss for the period (before non-
(3.3) (14.6) (17.9) (5.6) 2.3 41.1%
underlying items)
Non-underlying items (18.2) 3.2 (15.0) (9.9) (8.3) (83.8)%
Loss for the period (21.5) (11.4) (32.9) (15.5) (6.0) (38.7)%
Income tax 8.0 (9.6) (1.6) 7.5 0.5 6.7%
Loss for the period (13.5) (21.0) (34.5) (23.5) 10.0 42.6%

(1) – Before IFRS 16 - In order to facilitate the comparability of the underlying business to the prior year following the adoption of IFRS 16 on 1
January 2019, additional columns have been added to reflect the position in line with the accounting principles applicable to the previous year.

(2) - EBITDA (adjusted) = Earnings before interest, tax, depreciation and amortisation, and before rent free adjustment, non-underlying items &
reflective of the position in line with the accounting principles applicable to the previous year for purposes of comparability (before IFRS 16).
Non-underlying items have been removed as they relate to non-recurring, one-off items.

(3) - EBITDA = Earnings before interest, tax, depreciation, amortisation and non-underlying items.

(4) - In many of our leases we receive a rent free period at the beginning of the lease term. Under IFRS, the benefit of this rent free period is
held as an accrual on our balance sheet and is recognised in our income statement as a deduction to the actual rent expense in each period, on a
straight line basis, over the full life of the lease. As a result, our IFRS rent expense does not reflect our cash payments of rent in any period.
EBITDA in each period recognises the portion of the credit attributable to such period as if such credit were applied on a straight line basis until
the next rent review, normally five years, which is the measure which is used for internal management reporting.
15
Revenue

Revenue increased by £7.7m, or 4.4%, from £174.1m for the period from 1 October 2018 to
31 December 2018 to £181.8m for the period from 1 October 2019 to 31 December 2019,
with a good contribution from our recently opened new hotels, including the 14 opened in
2019 and the maturing 17 new hotels opened in 2018, including London City which
continues to perform strongly.

UK like-for-like RevPAR was up 1.1% to £41.47, 2.9pts ahead of the growth rate of the STR
Midscale and Economy Sector, which was down 1.8% for the same period. We also achieved
good revenue growth in Spain (up 12.5%), delivered through increases in like-for-like
average room rate and occupancy levels. UK food and beverage sales benefited from menu
optimisation and occupancy growth.

Operating expenses

Operating expenses increased by £2.5m, or 2.5%, from £99.5m for the period from 1
October 2018 to 31 December 2018 to £102.0m for the period from 1 October 2019 to 31
December 2019. Cost increases were predominantly driven by increased costs from our new
and maturing hotels opened since 2018, together with higher operational costs as a result of
occupancy growth and the cost pressures facing the sector as a whole.

The group continued to identify and implement cost saving initiatives during the year with
hotel cost efficiency programmes delivering savings across wages, laundry and
maintenance. These efficiencies helped to partially offset the wider sector cost pressures.

Decreases in cost of goods sold mainly reflect cost efficiencies in laundry and food and
beverages.

Employee cost increases reflect the impact of the National Living Wage and pension auto-
enrolment in the like-for-like estate and the additional staff in our new and maturing hotels.

Increases in other operating expenses are largely driven by our new and maturing hotels as
well as customer acquisition costs in line with revenue and higher banking charges and fees
in line with increased revenue and the increased mix of credit card payments.

Net external rent payable

Net external rent payable (before rent free adjustment and before IFRS 16(1)) increased by
£2.3m, or 4.5%, from £50.6m for the period from 1 October 2018 to 31 December 2018 to
£52.9m for the period from 1 October 2019 to 31 December 2019. This increase was
primarily due to 2 new hotel openings during the quarter, the additional 12 opened earlier in
the year and the annualisation of new hotel openings in 2018 and upwards only rent reviews
predominantly linked to RPI.

On adoption of IFRS 16, the group recognised lease liabilities in relation to leases which had
previously been classified as 'operating leases' under the principles of IAS 17 Leases.

The rent payable for operating leases previously reported under IAS 17, within EBITDA
(adjusted), has been replaced by depreciation of the right-of-use asset and notional
financing costs on the lease liability.

(1) – Before IFRS 16 - In order to facilitate the comparability of the underlying business to the prior year following the adoption of IFRS 16 on 1 January
2019, additional columns have been added to reflect the position in line with the accounting principles applicable to the previous year.

16
Depreciation / amortisation

Depreciation (before IFRS 16(1)) increased by £0.2m, or 1.8%, from £11.4m for the period
from 1 October 2018 to 31 December 2018 to £11.6m for the period from 1 October 2019 to
31 December 2019. This is mainly due to new hotel openings and ongoing investment in the
maintenance and refurbishment of our estate, including upgrading our hotels to offer
SuperRooms, Travelodge Plus and improved Wi-Fi. Energy efficiency investments, principally
in LED lighting and heating controls, continued throughout the quarter and also contributed
to the increased depreciation charge.

Amortisation (before IFRS 16(1)) increased by £0.5m, or 12.2%, from £4.1m for the period
from 1 October 2018 to 31 December 2018 to £4.6m for the period from 1 October 2019 to
31 December 2019. This is mainly due to on-going website development.

Following the adoption of IFRS 16 on 1 January 2019, depreciation has increased by

£29.8m, reflecting a charge for the right of use assets, and amortisation has decreased by
£(2.9)m, reflecting a reclassification of leasehold premiums to right of use assets.

Finance costs

Finance costs before investor loan interest (before IFRS 16(1)) decreased by £0.4m, or 3.9%,
from £10.2m for the period from 1 October 2018 to 31 December 2018 to £9.8m for the
period from 1 October 2019 to 31 December 2019. Lower bond interest costs following the
refinancing in July 2019 were partially offset by the impact of an increase in LIBOR.

Following the adoption of IFRS 16 on 1 January 2019, a notional additional finance cost of
£41.6m has been incurred relating to the lease liabilities.

Finance income

Finance income of £0.3m for the period from 1 October 2018 to 31 December 2018 and
£0.2m for the period from 1 October 2019 to 31 December 2019 is bank interest received.

Non-underlying items

In the quarter to 31 December 2019, non-underlying items (before taxation and the impact
of IFRS 16(1)) of £18.2m includes £15.0m for the impairment of intangible assets and
property plant & equipment, together with a net onerous lease provision reassessment of
£3.0m, and £0.2m related to management incentives with respect to the restructuring of the
Group‟s debt and other exceptional corporate activities.

The application of IFRS 16 results in non-underlying items reducing by £3.2m, due mainly to
the reversal of the net onerous lease provision reassessment of £3.0m as rent is no longer
charged under IFRS 16, together with a £0.2m reduction to the impairment charge given the
different basis of impairment testing, bringing the total statutory impairment charge to
£14.8m for the quarter. Statutory non-underlying items (before taxation) for the quarter
consist of the £14.8m impairment charge together with the £0.2m of items in connection
with the restructuring of the Group‟s debt which are unaffected by the adoption of IFRS 16.

(1) – Before IFRS 16 - In order to facilitate the comparability of the underlying business to the prior year following the adoption of IFRS 16 on 1 January
2019, additional columns have been added to reflect the position in line with the accounting principles applicable to the previous year.

17
Non-underlying items (before taxation) of £9.9m for the quarter ended 31 December 2018
included £6.7m for the impairment of fixed assets, £3.6m for charges in respect of the costs
of early redemption legal and advisors‟ fees and management incentives relating to the
restructuring of the Group‟s debt, and other exceptional corporate activities. Also included is
£3.4m of additional provisions recognised, less a provision reassessment release of £2.3m
and an inflow of £1.5m relating to the surrender of the lease at Cambridge Lolworth. These
non-underlying items resulted in a £0.5m decreased tax charge.

18
RISK FACTORS

Note holders are reminded that investing in the Notes involves substantial risks and Note
holders should refer to the “Risk Factors” section of the Offering Memorandum, published on
28 June 2019, and the 2018 Annual Report for the year ended 31 December 2018 for a
description of the risks that they should consider when making investment decisions about
the Notes.

The Covid-19 situation in the UK is still developing and it is too early to assess the possible
impacts on Travelodge which will depend on the severity and duration of the current
situation and the longevity of its impact on the economy and future consumer behaviour.
We expect to see a sustained period of closure of our hotels and continued disruption in the
short-term.

19
Registered number: 08170768

THAME AND LONDON LIMITED

UNAUDITED

FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2019

20
THAME AND LONDON LIMITED
CONDENSED CONSOLIDATED PROFIT AND LOSS
FOR THE YEAR ENDED 31 DECEMBER 2019

Unaudited Audited
Year ended Year ended
31 December 2019 31 December 2018

Comparable to 2018 Report Results IFRS 16 impact 2018 Reported Results

Non-
Underlying underlying Total Non-
before before before IFRS 16 underlying Non-
(1) (1)
IFRS 16 IFRS 16 IFRS 16 (1) impact IFRS 16 Statutory Underlying underlying Statutory
Note £m £m £m £m £m £m £m £m £m

Revenue 4 727.9 - 727.9 - - 727.9 693.3 - 693.3

Operating Expenses 5 (390.0) (0.8) (390.8) - - (390.8) (374.4) (5.2) (379.6)

Rent 5 (211.1) (3.0) (214.1) 214.5 3.0 3.4 (198.8) (0.4) (199.2)

EBITDA after rent free

4 126.8 (3.8) 123.0 214.5 3.0 340.5 120.1 (5.6) 114.5
adjustment

Depreciation, Amortisation
5 (62.1) (15.0) (77.1) (105.9) 0.2 (182.8) (58.8) (6.7) (65.5)
& Impairment

Operating Profit / (Loss) 4 64.7 (18.8) 45.9 108.6 3.2 157.7 61.3 (12.3) 49.0

Finance Costs 6 (52.3) (15.3) (67.6) (163.3) - (230.9) (53.6) (1.4) (55.0)

Finance Income 0.7 - 0.7 - - 0.7 0.9 - 0.9

Profit / (Loss) before

Tax 4 13.1 (34.1) (21.0) (54.7) 3.2 (72.5) 8.6 (13.7) (5.1)

Income Tax 3.5 6.8 10.3 (5.0) (0.5) 4.8 0.6 0.3 0.9

Profit / (Loss) for the

16.6 (27.3) (10.7) (59.7) 2.7 (67.7) 9.2 (13.4) (4.2)
Period

(1) – Before IFRS 16 - In order to facilitate the comparability of the underlying business to the prior year following the adoption of IFRS 16 on 1 January 2019, additional
columns have been added to reflect the position in line with the accounting principles applicable to the previous year.

Memorandum - EBITDA (adjusted)(2)

Year ended Year ended

31 December 31 December
2019 2018
£m £m

EBITDA (adjusted)(2) 129.1 122.0

(3 )
Rent free adjustment (2.3) (1.9)

EBITDA - Underlying
before IFRS 16 126.8 120.1

(2) EBITDA (adjusted) = Earnings before interest, tax, depreciation and amortisation, and before rent free adjustment, non-underlying items and
reflective of the position in line with the accounting principles applicable to the previous year for purposes of comparability (before IFRS 16).
Non-underlying items have been removed as they relate to non-recurring, one-off items.

(3) In many of our leases we receive a rent free period at the beginning of the lease term. Before IFRS 16, the benefit of this rent free period is
held as an accrual on our balance sheet and is recognised in our income statement as a deduction to the actual rent expense in each period, on a
straight line basis, over the full life of the lease. As a result, our rent expense does not reflect our cash payments of rent in any period. EBITDA
(adjusted) in each period recognises the portion of the credit attributable to such period as if such credit were applied on a straight line basis
until the next rent review, normally five years, which is the measure which is used for internal management reporting.

21
THAME AND LONDON LIMITED
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2019

Unaudited Audited
Year ended Year ended
31 December 31 December
2019 2018
£m £m

Loss for the year (67.7) (4.2)

Items that will subsequently be reclassified into profit and loss:

Movement on fair value of cash flow hedges (0.4) (0.1)
Currency translation differences (0.1) 0.3

Other comprehensive (expense) / income for the year, net of tax (0.5) 0.2

Total comprehensive expense for the year (68.2) (4.0)

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

FOR THE YEAR ENDED 31 DECEMBER 2019

Cash
Foreign Flow
Exchange Hedge Accumulated
Reserve Reserve Losses Total deficit
£m £m £m £m

1 January 2018 (0.6) 0.5 (89.5) (89.6)

Loss for the year - - (4.2) (4.2)

Other comprehensive income / (expense)
Movement in fair value of hedging derivatives - (0.1) - (0.1)
Currency translation differences 0.3 - - 0.3

Total comprehensive income / (expense) 0.3 (0.1) (4.2) (4.0)

1 January 2019 (0.3) 0.4 (93.7) (93.6)

Adjustment on adoption of IFRS 16 (net of tax) (Note 3) - - (179.6) (179.6)

Restated total equity at 1 January 2019 (0.3) 0.4 (273.3) (273.2)

Loss for the year - - (67.7) (67.7)

Other comprehensive expense

Movement in fair value of hedging derivatives - (0.4) - (0.4)
Currency translation differences (0.1) - - (0.1)

Total comprehensive expense (0.1) (0.4) (67.7) (68.2)

31 December 2019 (0.4) - (341.0) (341.4)

22
THAME AND LONDON LIMITED
CONDENSED CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2019

Unaudited Audited
31 December
31 December 2019 2018

Comparable to
2018 2018
Reported Reported
Results Results
Before IFRS 16
Note IFRS 16(1) impact Statutory Statutory
£m £m £m £m
NON CURRENT ASSETS
Intangible assets 8 347.1 (187.5) 159.6 365.5
Property, plant and equipment 9 144.4 (11.5) 132.9 140.3
Right of Use assets 10 - 2,521.3 2,521.3 -
Deferred tax asset 50.0 8.9 58.9 47.4
541.5 2,331.2 2,872.7 553.2
CURRENT ASSETS
Financial derivative asset 0.3 - 0.3 0.5
Inventory 1.2 - 1.2 1.1
Trade and other receivables 12 55.2 (36.6) 18.6 48.4
Cash and cash equivalents 89.2 - 89.2 81.8
145.9 (36.6) 109.3 131.8

TOTAL ASSETS 687.4 2,294.6 2,982.0 685.0

CURRENT LIABILITIES
Trade and other payables 13 (124.4) 4.7 (119.7) (133.6)
Lease liabilities 11 - (47.6) (47.6) -
Provisions 16 (1.7) 1.6 (0.1) (1.7)
(126.1) (41.3) (167.4) (135.3)
NON-CURRENT LIABILITIES
Bond related debt 15 (432.1) - (432.1) (420.8)
Investor loan 15 (111.3) - (111.3) (97.0)
Obligations under finance leases (33.6) 33.6 - (32.8)
Lease liabilities 11 - (2,549.8) (2,549.8) -
Deferred tax liability (54.1) (1.1) (55.2) (60.5)
Accruals 13 (17.8) 17.8 - (15.3)
Provisions 16 (17.2) 9.6 (7.6) (16.9)
(666.1) (2,489.9) (3,156.0) (643.3)
TOTAL LIABILITIES (792.2) (2,531.2) (3,323.4) (778.6)

NET LIABILITIES (104.8) (236.6) (341.4) (93.6)

EQUITY
Share capital - - - -
Foreign exchange reserve (0.4) - (0.4) (0.3)
Cash flow hedge reserve - - - 0.4
Accumulated losses (104.4) (236.6) (341.0) (93.7)
TOTAL EQUITY (104.8) (236.6) (341.4) (93.6)

Memorandum - Analysis of net funding

Unaudited Audited
31 December
31 December 2019 2018

Comparable to
2018 2018
Reported Reported
Results Results
Before IFRS 16
Note IFRS 16(1) impact Statutory Statutory
£m £m £m £m

Cash at bank 89.2 - 89.2 81.8

External debt redeemable (excluding finance leases):

Fixed Rate Bond 15 - - - (232.0)
Floating Rate Bond 15 (440.0) - (440.0) (195.0)
Issue costs 15 7.9 - 7.9 6.2
Gross debt 15 (432.1) - (432.1) (420.8)
External net debt (342.9) - (342.9) (339.0)
Investor loan 15 (111.3) - (111.3) (97.0)
Finance leases (33.6) 33.6 - (32.8)
Net debt (487.8) 33.6 (454.2) (468.8)

Lease liabilities 11 - (2,597.4) (2,597.4) -

(487.8) (2,563.8) (3,051.6) (468.8)

1. Before IFRS 16 - In order to facilitate the comparability of the underlying business to the prior year following the adoption of IFRS 16 on 1
January 2019, additional columns have been added to reflect the position in line with the accounting principles applicable to the previous year.

23
THAME AND LONDON LIMITED
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
AS AT 31 DECEMBER 2019

Unaudited Audited
Y ear ended
31 December
Y ear ended 31 December 2019 2018

Before IFRS 16
Statutory Statutory
IFRS 16 (1) impact
£m £m £m £m
CASH GENERATED FROM OPERATING ACTIVITIES 113.0 223.9 336.9 117.1
Corporate tax (1.4) - (1.4) (0.7)
NET CASH GENERATED FROM OPERATING ACTIVITIES 111.6 223.9 335.5 116.4
INVESTING ACTIVITIES
Interest rec eived 0.6 - 0.6 0.8
Purc hases of property, plant and equipment and intangible assets (65.9) - (65.9) (59.0)
Net cash used in investing activities (65.3) - (65.3) (58.2)
FINANCING ACTIVITIES
Financ e fees paid (0.2) - (0.2) (0.6)
Interest paid (28.7) - (28.7) (31.9)
Financ e lease rental interest payments (4.5) 4.5 - (4.5)
IFRS 16 lease rental c apital payments - (59.3) (59.3) -
IFRS 16 lease rental interest payments - (169.1) (169.1) -
Issue of floating rate bonds 440.0 - 440.0 30.0
Repayment of fixed and floating rate bonds (427.0) - (427.0) (29.0)
Financ e issue transac tion c osts (18.5) - (18.5) (0.8)
Repayment of ac c rued interest on investor loan - - - (34.6)
Net cash used in financing activities (38.9) (223.9) (262.8) (71.4)
Net increase in aggregate cash and cash equivalents 7.4 - 7.4 (13.2)
Cash and c ash equivalents at beginning of the period 81.8 - 81.8 95.0
Cash and cash equivalents at end of the period 89.2 - 89.2 81.8

(1) – Before IFRS 16 - In order to facilitate the comparability of the underlying business to the prior year following the adoption of IFRS 16 on 1 January 2019,
additional columns have been added to reflect the position in line with the accounting principles applicable to the previous year.

Memorandum - Analysis of free cash flow 1 Unaudited Audited

Year ended Year ended
31 Decem ber 31 Decem ber
2019 2018
Before
IFRS 16 (1) Statutory
2
EBITDA (adjusted) 129.1 122.0
Working c apital (7.4) 4.9
Net cash flows from operating activities before non-underlyings 121.7 126.9
Capital expenditure (65.9) (59.0)
Free cash flow generated for the year 55.8 67.9
Non-trading cash flow
Financ e fees paid (0.2) (0.6)
Interest paid (28.7) (31.9)
Interest inc ome 0.6 0.8
Financ e lease rental interest payments (4.5) (4.5)
Cash spend on provisions and non-underlying items 3 (27.2) (10.6)
Corporate tax (1.4) (0.7)
Non-trading cash flow (61.4) (47.5)
Cash generated (5.6) 20.4
Opening Cash 81.8 95.0
Movement in c ash (5.6) 20.4
Net refinanc ing proc eeds 13.0 1.0
Repayment of investor loan note - (34.6)
Closing Cash 89.2 81.8
Opening external net debt (339.0) (323.4)
Net inc rease in aggregate c ash 7.4 (13.2)
Net refinanc ing (4.4) (1.0)
Net amortised bond transac tion c osts (6.9) (1.4)
Closing net debt (342.9) (339.0)

1. Free cash flow is defined as cash generated before interest, non-underlying costs, spend on provisions and financing.

2. EBITDA (adjusted) = Earnings before interest, taxes, depreciation and amortisation, and before rent free adjustment, non-underlying items & reflective of the
position in line with the accounting principles applicable to the previous year for purposes of comparability (before IFRS 16). non-underlying items have been
removed as they relate to non-recurring, one-off items.
3. In 2019, cash spend on provisions and non-underlying items of £27.2m included costs of refinancing the Travelodge Group of £18.5m, non-underlying legal
and advisors' fees and management incentives relating to the restructuring of the Group's debt and other non-underlying corporate activities of £5.6m and
onerous lease provisions of £3.1m. In 2018, cash spend on provisions and non-underlying items of £10.6m includes transaction costs of refinancing the
Travelodge Group of £0.9m and other costs of £10.4m, including the costs of early redemption, legal and advisor's fees and management incentives relating to
the restructuring of the Group's debt and other non-underlying corporate activities, plus £0.8m relating to the surrender of the lease at the closed Gatwick Airport
hotel, partially offset by an inflow of funds related to the surrender of the lease at Cambridge Lolworth of £1.5m.

Unaudited Audited
Reconciliation of net cash flows from operating activities before Y ear ended Year ended
non-underlyings to net cash generated from operating 31 December 31 Decem ber
activities (note 17) 2019 2018
Before
IFRS 16 (1) Statutory
Net c ash flows from operating ac tivities before non-underlyings 121.7 126.9
Cash spend on non-underlying items through profit and loss - 0.1
4
Cash spend on non-underlying items through working c apital (8.7) (9.9)
Cash flows from operating activities 113.0 117.1
Corporate tax (1.4) (0.7)
Net cash generated from operating activities 111.6 116.4

4. 2019 cash spend on non-underlying items through working capital of £8.7m included £5.6m cash spend relating to accruals and £3.1m cash spend on
provisions. 2018 cash spend on non-underlying items through working capital of £9.9m includes £9.4m cash spend on provisions and £0.5m spend relating to
accruals.

24
THAME AND LONDON LIMITED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)

1 GENERAL INFORMATION

Thame and London Limited ("T&L") is the holding company of the Travelodge group
("Travelodge" or "The Group"), including Travelodge Hotels Limited ("THL"), the principal
trading company of Travelodge UK and TVL Finance PLC. Thame and London Limited,
formerly Anchor UK Bidco Limited (the Company) is a private company limited by share
capital and was incorporated in the United Kingdom on 7th August 2012. The Company
changed its name from Anchor UK Bidco Limited on 23rd May 2013. The Company is
domiciled in the UK.

2 SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting

The interim condensed consolidated financial statements are prepared in accordance with
IAS 34 'Interim Financial Reporting'.

The interim financial report does not constitute statutory accounts within the meaning of
section 434 of the Companies Act 2006.

The interim report does not include all the notes of the type normally included in an annual
financial report. Accordingly, this report is to be read in conjunction with the annual report
for the year ended 31 December 2018. The policies shown are an extract from the full
disclosure in the annual financial statements for the year ended 31 December 2018, as not
all policies are given.

Statutory accounts for the year ended 31 December 2018 were approved by the board of
directors on 4 April 2019 and delivered to the Registrar of Companies.

These published accounts were prepared in accordance with International Financial

Reporting Standards (IFRSs) as adopted for use in the European Union, and reported on by
the auditor without qualification or statement under Sections 498(2) or (3) of the Companies
Act 2006.

The group has adopted IFRS 16 Leases from 1 January 2019, but has not restated
comparatives for the 2018 reporting period as permitted under the specific transition
provisions in the standard. In order to facilitate the comparability of the underlying business
to the prior year following the adoption of IFRS 16, additional columns have been added to
reflect the position in line with the accounting principles applicable to the previous year
(„Before IFRS 16‟).

New and Amended Standards

The following new and amended standards are effective for the year ending 31 December
2019 and have been adopted in these statements.

IFRS 16, 'Leases'

The new accounting policy is given below and the impact of its adoption is described in note
3.

25
THAME AND LONDON LIMITED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)

Basis of consolidation

The unaudited financial statements consolidate the financial information of the Group and
entities controlled by the Group and its subsidiaries up to 31 December 2019. Control is
achieved when the investor is exposed, or has rights, to variable returns from its
involvement with the investee and has the ability to affect those returns through its power
over the investee. Uniform accounting policies are adopted across the Group.

The results of subsidiary undertakings acquired or disposed of during the year are included
in the consolidated income statement from the effective date of acquisition or disposal, as
appropriate.

All intra-Group transaction balances, income and expenses are eliminated on consolidation.

Business combinations

The acquisition of subsidiaries is accounted for using the purchase method. The cost of the
acquisition is measured at the aggregate of the fair values, at the date of exchange, of
assets given, liabilities incurred or assumed, and equity instruments issued by the Group in
exchange for control of the acquiree. Any costs directly attributable to the business
combination are expensed through the income statement. The acquirer's identifiable assets,
liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3
(Revised), Business Combinations, are recognised at their fair values at the acquisition date,
except for non-current assets (or disposal companies) that are classified as held for sale in
accordance with IFRS 5, Non-current assets held for sale and discontinued operations, which
are recognised and measured at fair value less costs to sell.

Seasonality

Revenue in the hotel sector fluctuates by season. The first quarter of the year is typically the
hotel industry‟s lowest seasonal demand period and usually our smallest in financial terms,
with the third quarter normally being our busiest and largest.

Revenue recognition

Revenue is measured at fair value of the consideration received or receivable and represents
the amount receivable for goods and services supplied to customers in the normal course of
business, net of trade discount and VAT. The Group‟s principal performance obligation is to
provide budget hotel accommodation and other goods and services to guests. Revenue
includes rooms revenue and food and beverage sales, which is recognised when the guests
stay. When payment is received at the time of room booking, prior to arrival date, a liability
for prepaid room purchases is recognised and held on the balance sheet. Revenue is
recognised when the customer stays. A proportion of the prepaid room purchases would be
non-refundable on cancellation of the room booking.

Under management agreements, the Group‟s performance obligation is to provide hotel

management services. Base and incentive management fees are typically charged. Base
management fees are typically a percentage of total hotel revenues and incentive
management fees are generally based on the hotel‟s profitability. Both are treated as
variable consideration. Base management fees are recognised as the underlying hotel
revenues occur. Incentive management fees are recognised over time when it is considered

26
THAME AND LONDON LIMITED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)

highly probable that the related performance criteria will be met, provided there is no
expectation of a subsequent reversal of the revenue.

Prepaid Room Purchases

Prepaid room purchases are where cash is received at time of room booking prior to arrival
date and is recognised when customers stay.

Non-underlying items

In order to understand the underlying performance of the business, material, non-recurring

items are separately disclosed as non-underlying items in the income statement.

Leasing

Effective on 1 January 2019, the group has adopted IFRS 16, which specifies how to
recognise, measure, present and disclose leases. The standard provides a single lessee
accounting model, requiring lessees to recognise assets and liabilities for all major leases.
The group has applied IFRS 16 using the modified retrospective approach and therefore the
comparison information has not been restated and continues to be reported under IAS 17
and IFRIC 4.

Policy applicable before 1 January 2019

For contracts entered into before 1 January 2019, the group determined whether the
arrangement was or contained a lease based on the assessment of whether:

 fulfilment of the arrangement was dependent on the use of a specific asset or assets;
and
 the arrangement had conveyed right to use the asset. An arrangement conveyed the
right to use the asset if one of the following was met:
 the purchaser had the ability or right to operate the asset while receiving or
controlling more than an insignificant benefit from use of the asset;
 the purchaser had the ability or right to control physical access to the asset while
receiving or controlling more than an insignificant benefit from use of the asset;
 the facts and circumstances indicated that it was remote that other parties would
receive or control more than an insignificant benefit from use of the asset.

Policy applicable from 1 January 2019

At inception of a contract, the group assesses whether a contract is, or contains, a lease. A
contract is, or contains, a lease if the contract conveys the right to control the use of an
identified asset for a period of time in exchange for consideration. To assess whether a
contract conveys the right to control the use of an identified asset, the group assesses
whether:

 the contract involves the use of an identified asset – this may be specified explicitly or
implicitly, and should be physically distinct or represent substantially all of the capacity
of a physically distinct asset. If the supplier has a substantive substitution right, then the
asset is not identified;
 the group has the right to obtain substantially all of the economic benefit from use of the
asset throughout the period of use; and
27
THAME AND LONDON LIMITED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)

 the group has the right to direct the use of the asset. The group has this right when it
has the decision-making rights that are the most relevant to changing how and for what
purpose the asset is used. In rare cases where the decision about how and for what
purpose the asset is used is predetermined, the group has the right to direct the use of
the asset if either:
 the group has the right to operate the asset; or
 the group designed the asset in a way that predetermines how and for what
purpose it will be used

This policy is applied to contracts entered into, or changed, on or after 1 January 2019.

As a lessee

The group recognises a right-of-use asset and a lease liability at the lease commencement
date. The right of use asset is initially measured at cost, which comprises the initial amount
of the lease liability adjusted for any lease payments made at or before the commencement
date, plus any initial direct costs incurred and less any lease incentives received. End of
lease property restoration costs are excluded from the initial cost because it is not possible
to estimate what they might be at the end of a typical 25 to 35 year lease term.

The right of use asset is subsequently depreciated using the straight line method from the
commencement date to the earlier of the end of the useful life of the right-of-use asset and
the end of the lease term. The estimated useful lives of right-of use assets are determined
on the same basis as those of plant and equipment. In addition, the right-of use asset is
periodically reduced by impairment losses, if any, and adjusted for certain re-measurements
of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are
not paid at the commencement date, discounted using the interest rate implicit in the lease
or, if that rate cannot be determined, the incremental borrowing rate specific to that lease.
Generally, the group uses the incremental borrowing rate as the discount rate.

Lease payments included in the measurement of the lease liability comprise the following:

 fixed payments (including in-substance fixed payments), less any lease incentives
receivable
 variable lease payment that are based on an index or a rate
 amounts expected to be payable by the lessee under residual value guarantees
 the exercise price of a purchase option if the lessee is reasonably certain to exercise
that option, and
 payments of penalties for terminating the lease, if the lease term reflects the lessee
exercising that option.

Each lease payment is allocated between the liability and finance cost. The finance cost is
charged to profit or loss over the lease period so as to produce a constant periodic rate of
interest on the remaining balance of the liability for each period.

The lease liability is re-measured when there is a change in future lease payments arising
from a change in an index or rate or when there is a lease modification. When the lease
liability is re-measured in this way, a corresponding adjustment is made to the carrying

28
THAME AND LONDON LIMITED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)

amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the
right-of-use asset has been reduced to zero.

Short-term leases and leases of low-value assets

The group has elected to recognise all its property right-of-use assets and lease liabilities. It
does not separately identify short-term leases that have a lease term of 12 months or less
and leases of low-value assets.

Under IAS 17

In the comparative period, as a lessee the group classified leases that transfer substantially
all of the risks and rewards of ownership as finance leases. When this was the case, the
leased assets were measured initially at an amount equal to the lower of fair value and the
present value of the minimum lease payments. Minimum lease payments were the payments
over the lease term that the lessee was required to make, excluding contingent rent.

Subsequently, the assets were accounted for in accordance with the accounting policy
applicable to that asset.

Assets held under other leases were classified as operating leases and were not recognised
in the group‟s consolidated balance sheet. Payments made under operating leases were
recognised in profit or loss on a straight line basis over the term of the lease. Lease
incentives received were recognised as an integral part of the total lease expense, over the
term of the lease.

As a lessor

When the group acts as a lessor, it determines at lease inception whether each lease is a
finance lease or operating lease.

To classify each lease, the group makes an overall assessment of whether the lease
transfers substantially all of the risks and rewards incidental to ownership of the underlying
asset. If this is the case, then the lease is a finance lease; if not, then it is an operating
lease. As part of this assessment, the group considers certain indicators such as whether the
lease is for the major part of the economic life of the asset.

When the group is an intermediate lessor, it accounts for its interests in the head lease and
the sub-lease separately. It assesses the lease classification of a sub-lease with reference to
the right-of-use asset arising from the head lease, not with reference to the underlying
asset. The lease classification of a sub-lease is also based on an assessment of the risks and
rewards of ownership of the right-of-use-asset arising from the head lease, in particular
whether or not the risks and rewards of ownership lie with the lessor.

The group recognises lease payments received under operating leases as income on a
straight line basis over the lease term as part of „other income‟.

The accounting policies applicable to the group as a lessor in the comparative period were
not different from IFRS 16 except that sub-lease rental income was classified as part of
„rent‟, being offset against rent payable for operating leases. In the comparative period when
the group was an intermediate lessor the sub-leases were classified with reference to the
underlying asset.

29
THAME AND LONDON LIMITED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)

The key sensitivities resulting from estimates in the calculation of the IFRS 16 numbers are:

 the discount rate used (in the interim financial report no assessment has been made
of the impact of a change in the discount rate).
 recognising right of use assets and lease liabilities based on lease terms which extend
to the first break clause only.

Taxation

Taxes on income in the interim periods are accrued using the tax rate which would be
applicable to expected total annual earnings.

Provisions

Provisions are recognised when the Group has a present obligation as a result of a past
event, and it is probable that the Group will be required to settle that obligation. Provisions
are measured at the Directors' best estimate of the expenditure required to settle the
obligation at the balance sheet date, and are discounted to present value where the effect is
material. Provisions recognised as at 31 December 2019 principally relate to onerous leases.

3 CHANGES IN ACCOUNTING POLICIES

As indicated in note 2 above, the group has adopted IFRS 16 Leases from 1 January 2019,
but has not restated comparatives for the 2018 reporting period as permitted under the
specific transition provisions in the standard.

On adoption of IFRS 16, the group recognised lease liabilities in relation to leases which had
previously been classified as 'operating leases' under the principles of IAS 17 Leases. These
liabilities were measured at the present value of the remaining lease payments, discounted
using the lessee's incremental borrowing rate as of 1 January 2019. The weighted average
lessee's incremental borrowing rate applied to the lease liabilities on 1 January 2019 was
7.02%.

It has had a significant impact on the presentation of the financial statements including
reported EBITDA, reported profit before tax and the balance sheet treatment of leasehold
obligations. IFRS 16 has materially increased the Group's recognised assets and liabilities in
the Consolidated Balance Sheet introducing right-of-use assets and lease liabilities calculated
based on discounted future committed lease payments. It has also materially changed the
presentation and timing of recognition of charges in the Consolidated Income Statement.
The operating lease expense previously reported under IAS 17, typically on a straight-line
basis, within EBITDA (adjusted), has been replaced by depreciation of the right-of-use asset
and notional financing costs on the lease liability. This results in increased 'lease-related
expenses' being charged to the Consolidated Income Statement in the early years of a lease
due to the front-loaded notional financing costs, significantly reducing reported Profit /
(Loss) Before Tax.

In addition, the presentation of the Consolidated Cash Flow Statement has been affected.
Actual lease payments, which were previously part of Operating Profit / (Loss) or Movements
in Payables within Net Cash Generated from Operating Activities, have now been split into a

30
THAME AND LONDON LIMITED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)

notional repayment of principal lease liability and a notional interest payment within
financing activities. Cash flows from Operating Activities has been positively impacted and
cash flows from Financing Activities has been negatively impacted. Though presented in
different parts of the Consolidated Cash Flow Statement, actual total pre-tax cash payments
will remain unchanged.

In adopting IFRS 16 an entity is permitted to follow one of two approaches: the full
retrospective approach or the modified retrospective approach. This is a single choice that
must be applied to all leases. The Group has chosen to adopt the modified retrospective
approach, which does not require restatement of comparative periods. Instead the
cumulative impact of applying IFRS 16 is accounted for as an adjustment to equity at the
start of the accounting period in which it is first applied, known as the „date of initial
application‟. Discount rates will be applied to future committed lease payments to calculate
the lease liability and are an area of significant judgement and estimation, particularly given
the term of our leases.

The associated right-of-use assets for the largest property leases were measured on a
retrospective basis as if the new rules had always been applied and for the remaining
property leases at the amount equal to the lease liability, adjusted by the amount of any
prepaid or accrued lease payments relating to that lease recognised in the balance sheet as
at 31 December 2018. Non-current assets (excluding deferred tax) increased by £2,313m on
1 January 2019, and lease liabilities increased by £2,509m. The net impact on retained
earnings on 1 January 2019 was £(180)m after adjustments for prepayments, accruals,
onerous lease provisions and deferred tax.

The adoption of IFRS 16 resulted in the following transition adjustment at 1 January 2019:

As at 31 December 2018, the Group had non-cancellable lease commitments of £4,394m.

Reconciliation of opening lease liability at 1 January 2019 Reported IFRS 16 Reported

as per discount as per
IAS 17 adjustment2 IFRS 16
£m £m £m

Operating lease commitments 4,394 (2,079) 2,315

Existing finance leases 33 - 33
Lease commitments 4,427 (2,079) 2,348
Lessor only extension options 1 790 (596) 194
Total lease commitments 5,217
Discounted at 7.0% 2 (2,675)
Lease liability at 1 January 2019 2,542

Comprising:
Lease liability in respect of leases previously classified as operating leases 2,509
Lease liability in respect of leases previously classified as finance leases 33
2,542

1
Lessor only extension options relate to additional lease liabilities required to be recognised under IFRS 16, where a landlord has a non-
rebuttable option to extend a lease.
2
The discount rate of 7.02% is the weighted average, by lease, of the estimated incremental borrowing rates calculated for each individual
lease at transition. The estimated incremental borrowing rate for each lease has been calculated, based on a number of factors, to approximate
the rate of interest that a lessee would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an
asset of a similar nature to and value of the right-of-use asset, in a similar economic environment.

31
THAME AND LONDON LIMITED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)

The balance sheet impact is further analysed as follows: £m

Right of use asset in respect of leases previously classified as operating leases 2,315
Lease liability in respect of leases previously classified as operating leases (2,509)
Deferred Tax Asset 13
Adjustment for prepayments, accruals and onerous lease provisions 1
Changes to Equity 3 (180)

3
The decrease in equity arises from those selected larger right-of-use property assets which have been measured on transition as if the new
rules had applied from inception of the lease, rather than equal to the lease liability.

In applying IFRS 16 for the first time, the group performed a retrospective impairment test
as at 1 January 2019. The test used an incremental borrowing rate for each identifiable
cash generating unit. As a result of this test, the group recognised an impairment loss on
transition of £35.7m relating to right-of-use assets. In addition, a reduction of £10.5m was
made in respect of onerous leases recognised at the date of adoption (see note 10).

The group also used the following practical expedients permitted by the standard:

 the use of a single discount rate to a portfolio of leases with reasonably similar
characteristics
 the exclusion of initial direct costs for the measurement of the right-of-use asset at
the date of initial application,
 the use of hindsight in determining the lease term where the contract contains
options to extend or terminate the lease.

The group has also elected not to apply IFRS 16 to contracts that were not identified as
containing a lease under IAS 17 and IFRIC 4 Determining whether an Arrangement contains
a Lease.

The group’s leasing activities and how these are accounted for

The group leases various properties, all but a few being hotel properties. Rental contracts
are typically made for fixed periods of 25 years or 35 years but may have extension options
as described below. Lease terms are negotiated on an individual basis and contain a range of
different terms and conditions. The lease agreements do not impose any covenants, but
leased assets may not be used as security for borrowing purposes.

Leases are recognised as a right-of-use asset and a corresponding liability at the date at
which the leased asset is available for use by the group. Each lease payment is allocated
between the liability and finance cost. The finance cost is charged to profit or loss over the
lease period so as to produce a constant periodic rate of interest on the remaining balance of
the liability for each period. The right-of-use asset is depreciated over the shorter of the
asset's useful life and the lease term on a straight-line basis.

Assets and liabilities arising from a lease are initially measured on a present value basis.
Lease liabilities include the net present value of the following lease payments:

 fixed payments (including in-substance fixed payments), less any lease incentives
receivable
 variable lease payment that are based on an index or a rate
 amounts expected to be payable by the lessee under residual value guarantees
32
THAME AND LONDON LIMITED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)

 the exercise price of a purchase option if the lessee is reasonably certain to exercise
that option, and
 payments of penalties for terminating the lease, if the lease term reflects the lessee
exercising that option.

The lease payments are discounted using the interest rate implicit in the lease, if that rate
can be determined, or the incremental borrowing rate.

Right-of-use assets are measured at cost comprising the following:

 the amount of the initial measurement of lease liability

 any lease payments made at or before the commencement date less any lease
incentives received, and
 any initial direct costs

Variable lease payments

Variable lease payments that depend on sales are recognised in profit or loss in the period in
which the condition that triggers those payments occurs.

Extension and termination options

a) Lessee options
Due to a property lease term typically being for 25 years or 35 years lessee lease
extension and termination options are not considered until 3 years prior to the
termination date (in line with our 3 year planning process) unless commercial
negotiations have commenced sooner.

b) Lessor options
Lessor only extension rights apply to a number of our properties and as required by IFRS
16 the period of the option to extend the lease is included as part of the overall lease
term.

33
THAME AND LONDON LIMITED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)

4 ANALYSIS OF RESULTS BY GEOGRAPHICAL REGION

Unaudited Audited
Y ear ended 31
Y ear ended 31
December
December 2019
2018
£m £m
Revenue
UK 713.1 680.1
International 14.8 13.2

Revenue 727.9 693.3

EBITDA - Underlying
UK EBITDA (adjusted) (1 ) 126.4 120.4
Rent free adjustment (2.3) (1.9)

UK EBITDA after rent free adjustment 124.1 118.5

International EBITDA after rent free adjustment 2.7 1.6
EBITDA after rent free adjustment before IFRS 16 126.8 120.1
UK IFRS 16 EBITDA adjustment 210.2 -
International IFRS 16 EBITDA adjustment 4.3 -

EBITDA after rent free adjustment - Underlying 341.3 120.1

Non-underlying items (Total) (0.8) (5.6)

EBITDA after rent free adjustment 340.5 114.5

Operating profit - Underlying

UK 62.2 59.9
International 2.5 1.4
Operating profit before IFRS 16 - Underlying 64.7 61.3

UK IFRS 16 Operating profit adjustment 106.9 -

International IFRS 16 Operating profit adjustment 1.7 -

Operating profit - Underlying 173.3 61.3

Non-underlying items (Total) (15.6) (12.3)

Operating profit 157.7 49.0

Profit / (Loss) before tax - Underlying

UK 10.7 7.1
International 2.4 1.5

Profit before tax - Underlying 13.1 8.6

Non-underlying items before IFRS 16 (note 7) (34.1) (13.7)

Loss before tax and IFRS 16 (21.0) (5.1)

UK IFRS 16 Loss before tax adjustment (50.1) -

International IFRS 16 Loss before tax adjustment (1.4) -

Loss before tax (72.5) (5.1)

(1)
EBITDA (adjusted) = Earnings before interest, taxes, depreciation and amortisation, and before rent free adjustment, non-
underlying items & reflective of the position in line with the accounting principles applicable to the previous year for purposes of
comparability (before IFRS 16). Non-underlying items have been removed as they relate to non-recurring, one-off items.

34
THAME AND LONDON LIMITED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)

5 NET OPERATING EXPENSES (BEFORE NON-UNDERLYING ITEMS)

Unaudited Audited
Y ear ended
31 December
Y ear ended 31 December 2019 2018
Underlying Underlying
before IFRS 16 Underlying Underlying
(1)
IFRS 16 impact Statutory Statutory
£m £m £m £m

Cost of goods sold 43.1 - 43.1 42.6

Employee c osts 173.9 - 173.9 165.6
Operating expenses 173.0 - 173.0 166.2
Net operating expenses before rent, 390.0 - 390.0 374.4
depreciation and amortisation
Rent payable (third party landlords) (3 ) 212.8 (212.2) 0.6 201.0
Rent rec eivable (4.0) - (4.0) (4.1)
Net external rent payable 208.8 (212.2) (3.4) 196.9
Rent free adjustment (2 ) 2.3 (2.3) - 1.9
Net rent 211.1 (214.5) (3.4) 198.8

Net operating expenses before depreciation

and amortisation 601.1 (214.5) 386.6 573.2

Deprec iation 44.6 117.7 162.3 42.2

Amortisation 17.5 (11.8) 5.7 16.6
Net depreciation and amortisation 62.1 105.9 168.0 58.8

Total net operating expenses 663.2 (108.6) 554.6 632.0

(1)
Before IFRS 16 - In order to facilitate the comparability of the underlying business to the prior year following the adoption of IFRS
16 on 1 January 2019, additional columns have been added to reflect the position in line with the accounting principles applicable to
the previous year.

(2)
In many of our leases we receive a rent free period at the beginning of the lease term. Before IFRS 16, the benefit of this rent
free period is held as an accrual on our balance sheet and is recognised in our income statement as a deduction to the actual rent
expense in each period, on a straight line basis, over the full life of the lease. As a result, our rent expense does not reflect our cash
payments of rent in any period. EBITDA (adjusted) in each period recognises the portion of the credit attributable to such period as
if such credit were applied on a straight line basis until the next rent review, normally five years, which is the measure which is used
for internal management reporting.

(3)
Statutory rent payable (after the impact of IFRS 16) of £0.6m relates to variable lease payments not included within right of use
assets.

6 FINANCE COSTS

Unaudited Audited
Y ear ended Y ear ended
31 December 31 December
2019 2018
Statutory Statutory
£m £m

Financ e fees 2.1 1.8

Interest on bank loans 1.0 1.2
Interest on fixed and floating rate bonds 29.1 30.5
Interest on obligations under financ e leases 5.3 5.2
Unwinding of disc ount on provisions 0.5 0.6
Finance costs before interest on investor loan, non-underlying items and IFRS 16 38.0 39.3

Interest on investor loan 14.3 14.3

Finance costs before non-underlying items and IFRS 16 52.3 53.6

Non-underlying items:
Fees in relation to restruc turing of debt 15.3 1.4

Finance costs before IFRS 16 67.6 55.0

(1)
IFRS 16 adjustment 163.3 -

Finance costs after IFRS 16 230.9 55.0

(1)
The total IFRS 16 notional interest charge on lease liabilities is £169.1m, including interest on the finance leases. In addition, the
IFRS 16 adjustment includes a £0.5m credit in respect of unwinding of discount on provisions.

35
THAME AND LONDON LIMITED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)

7 NON-UNDERLYING ITEMS

Non-underlying charges (before taxation and the impact of IFRS 16) of £34.1m for the year
ended 31 December 2019 includes £15.0m for the impairment of intangible assets and
property plant & equipment, together with a net onerous lease provision reassessment of
£3.0m, and £0.8m related to management incentives with respect to the restructuring of the
Group‟s debt and other exceptional corporate activities, together with break costs of £9.9m
and charges of £5.4m relating to the write off of unamortised loan issue costs following the
repayment of the fixed rate and floating rate bonds.

The application of IFRS 16 results in non-underlying charges reducing by £3.2m, due mainly
to the reversal of the net onerous lease provision reassessment of £3.0m as rent is no
longer charged under IFRS 16, together with a £0.2m reduction to the impairment charge
given the different basis of impairment testing, bringing the total statutory impairment
charge to £14.8m for the year.

Statutory non-underlying charges (before taxation) of £30.9m consist of the £14.8m

impairment charge together with the £16.1m of items in connection with the restructuring of
the Group‟s debt which are unaffected by the adoption of IFRS 16.

Non-underlying charges (before taxation) of £13.7m for the year ended 31 December 2018
included £6.7m for the impairment of fixed assets, £6.6m for charges in respect of the costs
of early redemption (which includes a charge of £0.5m relating to the release of prepaid fees
following the partial repayment of the fixed rate bond), legal and advisors‟ fees and
management incentives relating to the restructuring of the Group‟s debt, and other
exceptional corporate activities. Also included is £3.4m of additional provisions recognised,
less a provision reassessment release of £2.3m, a £0.8m loss relating to the surrender of
the lease at the closed Gatwick Airport hotel less an inflow of £1.5m relating to the
surrender of the lease at Cambridge Lolworth.

36
THAME AND LONDON LIMITED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)

8 INTANGIBLE ASSETS

Unaudited Audited
31 December
31 December 2019 2018

Before IFRS 16
IFRS 16(1) impact Statutory Statutory
£m £m £m £m

Opening net book value 365.5 - 365.5 380.0

Impac t of adoption of IFRS 16 - (206.8) (206.8) -
Revised opening net book value 365.5 (206.8) 158.7 380.0
Additions 9.0 (1.8) 7.2 6.3
Movement on c apital c reditors (0.6) - (0.6) 0.2
Amortisation (17.5) 11.8 (5.7) (16.6)
Impairment (9.3) 9.3 - (4.4)
Closing net book value 347.1 (187.5) 159.6 365.5

(1)
Before IFRS 16 - In order to facilitate the comparability of the underlying business to the prior year following the adoption of IFRS
16 on 1 January 2019, additional columns have been added to reflect the position in line with the accounting principles applicable to
the previous year.

The closing net book value at 31 December 2019 (before IFRS 16) comprises brand value of
£145.0m, assets under construction of £5.6m, lease premiums of £187.5m and IT software
of £9.0m. The IFRS 16 adjustment relates to the reclassification of lease premiums to right
of use assets (note 10).

The closing net book value at 31 December 2018 comprises brand value of £145.0m, assets
under construction of £3.9m, lease premiums of £206.8m and IT software of £9.8m.

Lease premiums are amortised on a straight line basis over the lease period. Each hotel to
which a lease premium asset is assigned is considered to be a separate cash generating unit
when assessing impairment.

In line with its accounting policy, the Group assesses the carrying value of all cash
generating units, which would include individual hotels, where there are indications of
potential impairment. Impairment reviews are performed annually at the Group's year end
of 31 December.

The Group prepares cash flow forecasts derived from the most recent financial budgets and
financial plans approved by the Directors and extrapolates cash flows beyond this time
based on an estimated long term growth rate of 2.5% (2018: 2.5%). The key assumptions
are consistent with past experience and with external sources of information. Reviews are
performed on a site by site basis over the length of the lease. The Directors have considered
the Group's financial projections and the assumptions which underpin those projections
including future growth of the budget hotel sector, brand demand and occupancy.

In order to allow comparability in this year of transition following the adoption of IFRS 16,
the Group has prepared this analysis on both the current statutory IFRS basis and also
before the impact of IFRS 16.

The pre IFRS 16 calculations consider cash flows including the impact of rent payments,
which have been discounted back at the Group's risk adjusted pre-tax weighted average cost
of capital (excluding lease liabilities) of 10.5% (2018: 9.0%). When calculating the discount
rate, the market-weighted average pre-tax cost of capital for the sector was used based on

37
THAME AND LONDON LIMITED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)

a portfolio of similar hotel businesses, based on the Capital Asset Pricing Model. These
discounted cash flows are then compared to assets, which exclude the right of use assets
created as a result of IFRS 16.

IT software is measured initially at purchase cost and is amortised on a straight line basis
over three years.

9 PROPERTY, PLANT AND EQUIPMENT

31 December
31 December 2019 2018
Before IFRS 16
IFRS 16(1) impact Statutory Statutory
£m £m £m £m

Opening net book value 140.3 - 140.3 132.4

Impact of adoption of IFRS 16(2 ) - (16.9) (16.9) -
Revised opening net book value 140.3 (16.9) 123.4 132.4
Additions 56.9 - 56.9 52.7
Movement on capital creditors (2.3) - (2.3) (0.3)
Disposals (0.2) - (0.2) -
Depreciation (44.6) 0.4 (44.2) (42.2)
Impairment (5.7) 5.0 (0.7) (2.3)
Closing net book value 144.4 (11.5) 132.9 140.3

(1)
Before IFRS 16 - In order to facilitate the comparability of the underlying business to the prior year following the adoption of IFRS
16 on 1 January 2019, additional columns have been added to reflect the position in line with the accounting principles applicable to
the previous year.

(2)
The impact of the adoption of IFRS 16 consists of the transfer of £15.5m from Property, Plant & Equipment to Right of Use assets,
representing the net book value of assets previously classified as finance lease assets, together with an additional £1.4m impairment
to fixtures and fittings on transition.

The closing net book value at 31 December 2019 (before IFRS 16) comprises assets under
construction of £2.9m, freehold and long leaseholds of £1.6m, finance leased land and
buildings of £15.1m and fixtures and fittings of £124.8m.

The IFRS 16 adjustment relates to the reclassification of finance leases to right of use assets
(note 10).

The closing net book value at 31 December 2018 comprises assets under construction of
£1.4m, freehold and long leaseholds of £1.6m, financed leased land and buildings of £15.5m
and fixtures and fittings of £121.8m.

Freehold and long leasehold properties are stated at cost. Depreciation is provided on cost in
equal annual instalments over the estimated remaining useful lives of the assets.

In line with its accounting policy, the Group assesses the carrying value of all cash
generating units, which would include individual hotels, where there are indications of
potential impairment. Impairment reviews are performed annually at the Group's year end
of 31 December.

The Group prepares cash flow forecasts derived from the most recent financial budgets and
financial plans approved by the Directors and extrapolates cash flows beyond this time
based on an estimated long term growth rate of 2.5% (2018: 2.5%). The key assumptions
are consistent with past experience and with external sources of information. Reviews are

38
THAME AND LONDON LIMITED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)

performed on a site by site basis over the length of the lease. The Directors have considered
the Group's financial projections and the assumptions which underpin those projections
including future growth of the budget hotel sector, brand demand and occupancy.

In order to allow comparability in this year of transition following the adoption of IFRS 16,
the Group has prepared this analysis on both the current statutory IFRS basis and also
before the impact of IFRS 16.

Before IFRS 16

The pre IFRS 16 calculations consider cash flows including the impact of rent payments,
which have been discounted back at the Group's risk adjusted pre-tax weighted average cost
of capital (excluding lease liabilities) of 10.5% (2018: 9.0%). When calculating the discount
rate, the market-weighted average pre-tax cost of capital for the sector was used based on
a portfolio of similar hotel businesses, based on the Capital Asset Pricing Model. These
discounted cash flows are then compared to assets, which exclude the right of use assets
created as a result of IFRS 16.

Statutory

The statutory IFRS calculations, including the impact of IFRS 16, consider cash flows
excluding rent payments in line with the income statement reporting for IFRS 16. In the
absence of asset specific market data following the introduction of IFRS 16, the discount rate
has been calculated with reference to the market-weighted average pre-tax cost of capital
based on a portfolio of similar hotel businesses using the Capital Asset Pricing Model as a
starting point. As permitted by IAS 36, this is then adjusted to reflect the estimated
incremental borrowing cost of leasing for each asset based on market rates at the date of
the review, in line with the methodology for assessing the variation in the discount rate by
asset used to calculate the discount rate which has been used to derive the lease liabilities
included on the balance sheet as a result of IFRS 16. This resulted in a weighted average
pre-tax discount rate of 8.3% (2018: n/a), with a range of 6.8% to 9.3% for the Group‟s
portfolio of leases.

39
THAME AND LONDON LIMITED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)

10 RIGHT OF USE ASSETS

Unaudited Audited
31 December 31 December
2019 2018
£m £m

Opening net book value - -

Impact of adoption of IFRS 16(1 ) 2,536.7 -
New leases 64.1 -
Rent Review Adjustments 52.6 -
Additions(2 ) 1.8 -
Foreign Exchange Translation Adjustment (1.7) -
Depreciation (118.1) -
Impairment (14.1) -
Closing net book value 2,521.3 -

(1) The impact of adoption of IFRS 16 is made up of:

(i) The transfer of £15.5m from Property, Plant & Equipment which represents the net book value of assets previously
classified as finance lease assets.
(ii) The transfer of £206.8m from Intangible Assets which represents the net book value of assets previously classified as
lease premiums.
(iii) The transfer of £10.5m from provisions which is in respect of leases for which onerous lease provisions were held at the
transition date.
(iv) Additional new assets recognised of £2,360.60 in respect of operating leases
(v) An impairment of £35.7m to the Right of Use asset at the transition date.

(2) Additions relate to leasehold premiums

In line with its accounting policy, the Group assesses the carrying value of all cash
generating units, which would include individual hotels, where there are indications of
potential impairment. Impairment reviews are performed annually at the Group's year end
of 31 December.

The Group prepares cash flow forecasts derived from the most recent financial budgets and
financial plans approved by the Directors and extrapolates cash flows beyond this time
based on an estimated long term growth rate of 2.5% (2018: 2.5%). The key assumptions
are consistent with past experience and with external sources of information. Reviews are
performed on a site by site basis over the length of the lease. The Directors have
considered the Group's financial projections and the assumptions which underpin those
projections including future growth of the budget hotel sector, brand demand and
occupancy.

The statutory IFRS calculations, including the impact of IFRS 16, consider cash flows
excluding rent payments in line with the income statement reporting for IFRS 16. In the
absence of asset specific market data following the introduction of IFRS 16, the discount rate
has been calculated with reference to the market-weighted average pre-tax cost of capital
based on a portfolio of similar hotel businesses using the Capital Asset Pricing Model as a
starting point. As permitted by IAS 36, this is then adjusted to reflect the estimated
incremental borrowing cost of leasing for each asset based on market rates at the date of
the review, in line with the methodology for assessing the variation in the discount rate by
asset used to calculate the discount rate which has been used to derive the lease liabilities
included on the balance sheet as a result of IFRS 16. This resulted in a weighted average
pre-tax discount rate of 8.3% (2018: n/a), with a range of 6.8% to 9.3% for the Groups
portfolio of leases.

40
THAME AND LONDON LIMITED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)

11 IFRS 16 LEASE LIABILITIES

Unaudited Audited
31 December 31 December
2019 2018
£m £m

Opening Balanc e - -
Transfer from Financ e Lease Creditor(1 ) (32.8) -
New Lease Liabilities on Adoption (2,509.1) -
Adoption of IFRS 16 (2,541.9) -
New leases (64.1) -
Rent Review Adjustments (52.6) -
Foreign Exc hange Translation Adjustment 1.9 -
Financ e Costs (169.1) -
Payments - Financ e Leases 4.5 -
Payments - Operating Leases 223.9 -
Closing Balance (2,597.4) -

Amounts falling due within one year (47.6) -

Amounts falling due after one year (2,549.8) -
(2,597.4) -

(1)
Following the adoption of IFRS 16 on 1 January 2019, leases previously classified as finance leases have been included in the
IFRS 16 lease liability.

Lease liabilities have been discounted at a weighted average discount rate of 7.10% and
represent leases with a weighted average remaining length from the balance sheet date of
23.1 years. This compares to the pre-tax weighted average discount rate used to create the
lease liabilities of 7.1% with a range of 5.5% to 9.1%.

12 TRADE AND OTHER RECEIVABLES

Unaudited Audited

31 December
31 December 2019 2018
Before IFRS 16
IFRS 16(1) impact Statutory Statutory
£m £m £m £m

Amounts due within one year:

Trade amounts receivable
- Gross amounts receivable 6.5 - 6.5 7.6
- Bad debt provision (0.2) - (0.2) (0.4)
- Net amounts receivable 6.3 - 6.3 7.2
Other amounts receivable 4.1 - 4.1 3.5
Corporation tax debtor 1.3 - 1.3 -
Accrued income 2.4 - 2.4 1.8
Prepayments 41.1 (36.6) 4.5 35.9

55.2 (36.6) 18.6 48.4

(1)
Before IFRS 16 - In order to facilitate the comparability of the underlying business to the prior year following the adoption of IFRS
16 on 1 January 2019, additional columns have been added to reflect the position in line with the accounting principles applicable to
the previous year.

The IFRS 16 impact represents the fact that all rent prepayments are now reflected as a
reduction to the lease liabilities once the payments are made.

41
THAME AND LONDON LIMITED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)

13 TRADE AND OTHER PAYABLES

Unaudited Audited

31 December
31 December 2019 2018
Before IFRS 16
IFRS 16(1) impact Statutory Statutory
£m £m £m £m

Trade payables (13.5) - (13.5) (15.5)

Other payables (8.7) - (8.7) (7.5)
Social security and other taxation (7.5) - (7.5) (14.2)
Accruals (59.9) 4.7 (55.2) (58.8)
Deferred income (1.5) - (1.5) (0.8)
Corporation tax creditor - - - -
Prepaid room purchases (27.5) - (27.5) (28.1)
Capital payables (5.8) - (5.8) (8.7)

Amounts falling due within one year (124.4) 4.7 (119.7) (133.6)

Amounts falling due after one year:

Accruals (17.8) 17.8 - (15.3)

Total (142.2) 22.5 (119.7) (148.9)

(1)
Before IFRS 16 - In order to facilitate the comparability of the underlying business to the prior year following the adoption of IFRS
16 on 1 January 2019, additional columns have been added to reflect the position in line with the accounting principles applicable to
the previous year.

The IFRS 16 impact represents the fact that all rent review accruals in respect of reviews not
yet agreed and accruals relating to rent free periods are now reflected as adjustments to the
right of use assets and lease liabilities.

14 POST BALANCE SHEET EVENTS

A £40m drawdown on the revolving credit facility was made in March 2020. On 20 April
2020, the Group entered a new £60m revolving credit facility agreement. The new credit
facility has a maturity of May 2022 and remains undrawn.

42
THAME AND LONDON LIMITED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)

15 FINANCIAL ASSETS AND LIABILITIES

Unaudited Audited
31 December
31 December 2019 2018
Before IFRS 16
Maturity IFRS 16(1) impact Statutory Statutory
Date £m £m £m £m

Cash at bank and in hand 89.2 - 89.2 81.8

External debt redeemable:
Fixed Rate Bond May 2023 - - - (232.0)
Floating Rate Bond May 2023 (440.0) - (440.0) (195.0)
Issue Costs 7.9 - 7.9 6.2
External debt (432.1) - (432.1) (420.8)
Net external debt (342.9) - (342.9) (339.0)
Investor Loan Note January 2026 (111.3) - (111.3) (97.0)
Net debt before finance leases (454.2) - (454.2) (436.0)
Obligations under Finance leases (33.6) 33.6 - (32.8)
Lease liabilities under IFRS 16 - (2,597.4) (2,597.4) -

Net debt including finance leases (487.8) (2,563.8) (3,051.6) (468.8)

(1)
Before IFRS 16 - In order to facilitate the comparability of the underlying business to the prior year following the adoption of IFRS
16 on 1 January 2019, additional columns have been added to reflect the position in line with the accounting principles applicable to
the previous year.

The IFRS 16 impact represents the fact that operating lease commitments and finance lease
creditors have been replaced by the lease liabilities from 1 January 2019. The lease liabilities
represent the present value of future lease payments in respect of the right of use assets.

On 5 July 2019, Travelodge completed a refinancing of its existing debt facilities.

Senior secured notes

Senior secured fixed rate sterling denominated notes of £290m were issued on 10 May 2016
with a termination date of 11 May 2023. Of these, £29m were repaid on 28 April 2017, a
further £29m were repaid on 3 January 2018 and the remaining £232m were repaid on 5
July 2019. Interest was fixed at 8.5% and payable on a semi-annual basis.

Senior secured floating rate sterling denominated notes of £165m and £30m were issued on
28 April 2017 and 3 January 2018 respectively, with a termination date of 15 May 2023.
Interest was floating at three month LIBOR plus a margin of 4.875% and payable on a
quarterly basis. These notes were repaid on 5 July 2019.

On 5 July 2019 new senior secured floating rate sterling denominated notes of £440m were
issued with a termination date of 15 July 2025. Interest is floating at three month LIBOR
plus a margin of 5.375%. Interest is payable quarterly each January, April, July and
October, commencing in October 2019. The notes may be redeemed at any time on or after
15 July 2020, at par.

Non-underlying costs of £15.3m were incurred including break costs of £9.9m and the write
off of unamortised loan issue costs in respect to the existing facilities of £5.4m. Further loan
issue costs of approximately £8.6m will be amortised over the life of the facility in line with
generally accepted accounting practice.

43
THAME AND LONDON LIMITED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)

Revolving credit facility

At the balance sheet date, a sterling denominated revolving credit facility of £40m was
available to the Group until July 2024. At the date of these financial statements the facility
was fully drawn.

The revolving credit facility was reduced from £50m to £40m on 5 July 2019 during the
refinancing and was extended from April 2022 until July 2024, reflecting our strong liquidity.

Letter of credit facility

The letter of credit facility has a maximum usage of £30m and is available until July 2024
(as amended on 5 July 2019). At 31 December 2019, a letter of credit was in issue to the
Group to the value of £14.8m, but not called upon.

Issue costs
Costs incurred in issuing the senior secured sterling denominated notes, revolving credit and
letter of credit facility have been deducted from the fair value of the notes and facilities,
which are carried at amortised cost.

Investor loan note

The interest rate charged on the investor loan note is 15%. Accrued interest for year to 31
December 2019 totalled £14.3m (2018: £14.3m). The investor loan note has a termination
date of January 2026.

A comparison of the carrying value and fair value of the Group's financial assets and
liabilities is shown below:

31 December 2019 31 December 2018

Carrying
Carrying amount Fair value amount Fair value
Before IFRS 16
IFRS 16(1) impact Statutory Statutory Statutory Statutory
£m £m £m £m £m £m
Financial instrument categories

Cash and Cash Equivalents 89.2 - 89.2 89.2 81.8 81.8

Loans and receivables (2) 12.8 - 12.8 12.8 12.5 12.5
Financial derivative asset 0.3 - 0.3 0.3 0.5 0.5
Bond related debt (440.0) - (440.0) (442.6) (427.0) (432.3)
Investor Loan Note (111.3) - (111.3) (111.3) (97.0) (97.0)
Financial liabilities (3) (158.2) (2,530.1) (2,688.3) (2,688.3) (157.2) (157.2)

(607.2) (2,530.1) (3,137.3) (3,139.9) (586.4) (591.7)

(1)
Before IFRS 16 - In order to facilitate the comparability of the underlying business to the prior year following the adoption of IFRS
16 on 1 January 2019, additional columns have been added to reflect the position in line with the accounting principles applicable to
the previous year.
(2)
Loans and receivables of £12.8m (2018: £12.5m) are made up of trade receivables of £6.3m (2018: £7.2m), other receivables of
£4.1m (2018: £3.5m) and accrued income of £2.4m (2018: £1.8m).

(3)
Financial liabilities (before IFRS 16) of £158.2m (2018: £157.2m) are made up of finance lease payables of £33.6m (2018:
£32.8m), provisions of £18.9m (2018: £18.6m), trade payables of £13.4m (2018: £15.5m), capital payables of £5.8m (2018:
£8.7m), accruals of £77.8m (2018: £74.1m) and other payables of £8.7m (2018: £7.5m).

Loans and receivables and financial liabilities (excluding finance lease payables) are due
within one year.

44
THAME AND LONDON LIMITED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)

Interest rate cap

On 30 July 2019, Travelodge paid an upfront premium of £467k to purchase an interest rate
cap in relation to the senior secured floating sterling denominated notes, on a notional
amount of £300m.

The interest rate cap commences in respect of payments due on 15 January 2020 and is due
to terminate on 15 October 2022.

As per the terms of the cap, if LIBOR exceeds 1.5% after 15 October 2019, Travelodge will
receive a cash settlement on the difference between LIBOR and 1.5% to cover a portion of
the scheduled quarterly payments on a notional amount of £300m, up to 15 October 2022.

Interest rate hedge

On 15 August 2019 the interest rate hedge expired. The interest rate hedge was against
£100.0m of the senior secured floating rate notes with an effective date from 15 November
2016 and a termination date of 15 August 2019. The pay rate of the hedge was fixed at
0.376% and the receive rate of the hedge floated to LIBOR.

At 31 December 2019, the fair value of the hedge was £nil (31 December 2018: £0.4m).

Swaption
On 30 June 2017, Travelodge entered into a swaption in relation to the senior secured
floating sterling denominated notes of £165m.

The swaption commenced on 15 May 2019 and was due to terminate on 15 May 2021. On
15 May 2019 LIBOR was less than 1.5% so the product was not activated and expired. At 31
December 2019, the fair value of the swaption was £nil (31 December 2018: £0.1m).

16 PROVISIONS

Unaudited Audited
31 December
31 December 2019 2018
Before IFRS 16
IFRS 16(1) impact Statutory Statutory
£m £m £m £m

At 1 January 2019 (18.6) 10.5 (8.1) (23.0)

Cash spend 3.1 (2.7) 0.4 9.4
Reassessment of provisions (3.0) 3.0 - (1.1)
Unwinding of discount on provisions (0.5) 0.5 - (0.6)
Foreign exchange rate movement 0.1 (0.1) - -
Transfer from accruals - - - (3.3)

At 31 December 2019 (18.9) 11.2 (7.7) (18.6)

The balance can be analysed as:

Due in less than one year (1.7) 1.6 (0.1) (1.7)
Due in greater than one year (17.2) 9.6 (7.6) (16.9)
(18.9) 11.2 (7.7) (18.6)

(1)
Before IFRS 16 - In order to facilitate the comparability of the underlying business to the prior year following the adoption of IFRS
16 on 1 January 2019, additional columns have been added to reflect the position in line with the accounting principles applicable to
the previous year.

A „before IFRS 16‟ discount rate of 4.0% (2018: 4.0%), being the pre-tax risk free rate
adjusted for property risk, is used to calculate the net present value of the provisions.

45
THAME AND LONDON LIMITED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)

Provisions of £18.9m can be analysed as: onerous lease provisions of £1.7m relating to
future rent and rates liabilities on sub leased historic restaurant units, £10.9m relating to
fifteen UK hotels and one Spanish hotel where it is considered improbable that trading
profits will be generated within a period of 7 years and £6.3m of other provisions.

Onerous lease provisions relate to the future discounted cash outflow in relation to certain
rent and rates liabilities where no economic benefit is expected to accrue to the Group.
These provisions have an average remaining lease term of 15 years and have been
discounted at a „before IFRS 16‟ pre-tax risk free rate of 4.0% (2018: 4.0%).

Following the adoption of IFRS 16 on 1 January 2019, provisions in respect of onerous leases
of £10.5m were reflected as a reduction to the Right of Use assets at the transition date.
Any subsequent payments in respect of these leases reduce the IFRS 16 lease creditor.

17 NOTE TO THE CASH FLOW STATEMENT

Unaudited Audited

Year ended 31
December
Year ended 31 December 2019 2018
Before IFRS 16
IFRS 16 (1) impact Statutory Statutory
£m £m £m £m

Operating profit 45.9 111.8 157.7 49.0

Adjustments for non-cash items:

Depreciation of property, plant and equipment 44.6 117.7 162.3 42.2
Amortisation of other intangible assets 17.5 (11.8) 5.7 16.6
Impairment of fixed assets 15.0 (0.2) 14.8 6.7
77.1 105.7 182.8 65.5

Operating cash flows before movements in working capital 123.0 217.5 340.5 114.5

Movement in inventory (0.1) - (0.1) (0.1)

Movement in receivables (6.9) 1.4 (5.5) (4.7)
Movement in payables (2.9) 5.3 2.4 12.4
Movement in provisions (0.1) (0.3) (0.4) (5.0)
Total working capital movement(2) (10.0) 6.4 (3.6) 2.6

Cash flows from operating activities 113.0 223.9 336.9 117.1

Corporate tax (1.4) - (1.4) (0.7)

Net Cash Generated from operating activities 111.6 223.9 335.5 116.4

(1)
Before IFRS 16 - In order to facilitate the comparability of the underlying business to the prior year following the adoption of IFRS
16 on 1 January 2019, additional columns have been added to reflect the position in line with the accounting principles applicable to
the previous year.

(2)
Working capital movement of £(10.0)m (2018: £2.6m) is after non-underlying outflows of £4.9m (2018: outflows of £4.2m) and
before rent free adjustment of £2.3m (2018: £1.9m). Working capital movement in "Memorandum - Analysis of free cash flow" on
page 23 is stated before non-underlying movements and before rent free adjustment.

18 ALTERNATIVE PERFORMANCE MEASURES (APMS)

The Group uses the non-statutory alternative performance measures „EBITDA (adjusted)‟
and 'Free Cash Flow' to monitor the financial performance of the Group internally. This
measure is not a statutory measure in accordance with IFRS.

We report these measures because we believe it provides both management and other
stakeholders with useful additional information about the financial performance of the
Group‟s businesses.

46
THAME AND LONDON LIMITED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)

APMs are not defined by IFRS and therefore may not be directly comparable with similarly
titled measures reported by other companies. APMs should be considered in addition to, and
are not intended to be a substitute for, or superior to, IFRS measures.

We believe the non-IFRS measures are useful metrics for investors to understand our results
of operations, profitability and ability to service debt and because they permit investors to
evaluate our recurring profitability from underlying operating activities.

We also use these measures internally to track our business performance, establish
operational and strategic targets and make business decisions. We believe EBITDA
(adjusted) facilitates operating performance comparisons between periods and among other
companies in industries similar to ours because it removes the effect of variation in capital
structures, taxation, and non-cash depreciation, amortisation and impairment charges,
which may be unrelated to operating performance. We believe EBITDA (adjusted) is a useful
measure of our underlying operating performance because it excludes the impact of items
which are not related to our core results of operations, including certain one-off or non-
recurring items and more closely aligns the recognition of rent free periods in profitability
with the corresponding cash impact.

The table below provides a reconciliation of the statutory IFRS measures to the APMs used to
measure the business:
2019 2018
£m £m

Statutory Loss before Tax (72.5) (5.1)

Net Finance Costs 230.2 54.1

Operating Profit 157.7 49.0

Non-underlying Items (See note 7) 15.6 12.3

Underlying Operating Profit 173.3 61.3

Reverse IFRS 16 Rent Adj(1 ) (214.5) -

Depreciation, Amortisation - Underlying 168.0 58.8

EBITDA - before Rent Free Adjustment 126.8 120.1

(2 )
Rent Free Adjustment 2.3 1.9
(3)
EBITDA
Adjusted(adjusted)
EBITDA(3) 129.1 122.0

(1)
The rent payable for operating leases of £212.2m and the rent free adjustment of £2.3m are replaced by
depreciation of the right of use asset and notional financing costs on the lease liability under IFRS 16. This
adjustment has been reversed to calculate EBITDA (adjusted)(3).

(2)
In many of our leases we receive a rent free period at the beginning of the lease term. Prior to IFRS 16, the
benefit of this rent free period is held as accrued income on our balance sheet and is recognised in our income
statement as a deduction to the actual rent expense in each period, on a straight line basis, over the full life of the
lease. As a result, our rent expense does not reflect our cash payments of rent in any period. EBITDA (adjusted) in
each period recognises the portion of the credit attributable to such period as if such credit were applied on a
straight line basis until the next rent review, normally five years, which is the measure which is used for internal
management reporting.

(3)
EBITDA (adjusted) = Earnings before interest, tax, depreciation and amortisation, and before rent free
adjustment, non-underlying items and reflective of the position in line with the accounting principles applicable to
the previous year for purposes of comparability (before IFRS 16). Non-underlying items have been removed as they
relate to non-recurring, one-off items.

47
THAME AND LONDON LIMITED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)

2019 2018
£m £m

EBITDA (adjusted)(3 ) 129.1 122.0

Workings capital (7.4) 4.9

Net cash flows from operating activities before non-underlyings 121.7 126.9

Capital expenditure (65.9) (59.0)

Free Cash Flow 55.8 67.9

(3)
EBITDA (adjusted) = Earnings before interest, tax, depreciation and amortisation, and before rent free
adjustment, non-underlying items and reflective of the position in line with the accounting principles applicable to
the previous year for purposes of comparability (before IFRS 16). Non-underlying items have been removed as they
relate to non-recurring, one-off items.

48