18th September 2006

Dawnay Shore Hotels plc

Interim results for the 26 week period ended 2 July 2006

Highlights

• DSH* like for like hotel EBITDA increases by 4.3%
• Valuation** uplift increases net asset value per share to 375p+ up 117% since year end
• Strong demand in corporate and meetings sector with rooms revenue up 6% in these segments
• Significant boost to operating performance at Hinckley post renovation
• Walton Hall redevelopment on target for completion in 2007
• Furlong hotels, including The Lygon Arms, integrated as Paramount Signature Hotels

* Excludes Walton Hall which is under redevelopment
** The hotels have been valued as individual assets hence the valuation excludes any portfolio premium
+ Increase is after allowing for the carried interest that would be payable to the DSH Founder Investors. NAV per share at
2 July 2006, after allowing for the carried interest, is 375p versus 173p at year end

H1 2006
(Unaudited) H1 2005
(Unaudited)% change
Turnover£47.0m£46.1m1.8%
Hotel Operating Profit*£15.9m£15.2m4.3%
Occupancy66.5%68.1%(2.4%)
Average Room Rate£71.38£68.134.8%
Revenue per Available Room£47.45£46.402.3%
Total Revenue per Available Room£100.79£99.441.4%

* HOP is EBITDA for the individual hotels, excluding head office costs
The above figures exclude Walton Hall which is under redevelopment. A reconciliation of the Turnover and Hotel Operating Profit to the Consolidated Financial Statements is included in the sections that follow.

Charles Prew, Chief Executive of Dawnay Shore Hotels plc, said:
“We are pleased with the progress achieved in the first half of the current year with the key measures of profitability and total turnover growth both outperforming our peer group. The growth in hotel operating profits is especially encouraging given rising energy costs. We are starting building works on over 200 new rooms this year across the group and we have a very active and ongoing programme of refurbishment within our hotels.

“The uplift in individual hotel asset values is also very encouraging and recent transactions in the hotel market continue to highlight the attraction of a diversified chain of UK premium regional hotel assets.”

Press enquiries:
Dawnay Shore Hotels plc020 7834 8060
Guy Naggar
Charles Prew
Howard Shore020 7468 7911
Shore Capital and Corporate020 7408 4090
Graham Shore
Citigate Dewe Rogerson020 7638 9571
Margaret George

Notes to Editors

1. DSH was established in 2004 by Dawnay, Day and Shore Capital, and currently owns a portfolio of 20 four star regional hotels in the United Kingdom. DSH now operates under the Paramount brand of distinction and has also created a signature group of hotels. The portfolio includes the world famous The Lygon Arms Hotel, a member of the Leading Hotels of the World located in the Cotswolds; the prestigious Paramount Carlton Hotel in Edinburgh and the Paramount Oxford Hotel. Paramount hotels offer extensive banqueting, conference and leisure facilities and many of them have architectural and historical significance.

2. During the planned five year investment period, a number of possibilities for exit will be explored. These include flotation of the Company, transfer of the properties into a retail investment structure or REIT and sale of the DSH Group in its entirety to another hotel group or private equity buyer.

3. DSH’s hotel locations are shown below:
CENTRAL ENGLANDBedroomsNo. of meeting roomsHealth & LeisureLocation
1Billesley Manor Hotel* 7210YCountry
2Paramount Cheltenham Park Hotel, Cheltenham 15211YCountry
3Paramount Daventry Hotel, Northamptonshire 13819YCity
4Paramount Hinckley Island Hotel, Leicestershire 34921YCountry
5Paramount Oxford Hotel, Oxford 16825YCity
6Paramount Palace Hotel, Buxton 1227YCountry
7Paramount Walton Hall Hotel & Spa 1329YCountry
8The Lygon Arms*694YCountry

NORTHERN ENGLAND
9Paramount Imperial Hotel, Blackpool 18015YCity/Coast
10Paramount Majestic Hotel, Harrogate 1568YCity
11Paramount Redworth Hall Hotel, County Durham 10014YCountry
12Paramount Shrigley Hall Hotel, Golf & Country Club, Cheshire 14811YCountry

SCOTLAND
13Paramount Carlton Hotel, Edinburgh 18910YCity
14Paramount Marine Hotel, Troon 894YCoast
15Paramount Stirling Highland Hotel, Stirling 966YCity

SOUTHERN ENGLAND
16Combe Grove Manor* 425YCountry
17Paramount Basingstoke Country Hotel 10012YCity/Country
18Paramount Imperial Hotel, Torquay 1528YCoast
19Paramount Old Ship Hotel, Brighton 15213NCity / Coast

WALES
20Paramount Angel Hotel, Cardiff 1027NCity

Total 2,708

* Paramount Signature Hotel
Chief Executive’s Statement

Review of Operations and Financial Performance

After significant expansion of the portfolio during 2005, DSH now owns twenty hotels comprising in excess of 2,700 rooms across the UK. Management focus during 2006 is on integrating the three Furlong hotels, property enhancements to the portfolio and maximising returns from all Group hotels. In particular, significant attention is being dedicated to leveraging value from the renovation and re-launch of the Hinckley Island Hotel and Walton Hall, as well as identifying opportunities to add rooms to the portfolio.

To achieve the integration of the Furlong hotels, service standards that will apply to all Paramount Signature Hotels have been defined and rolled-out at each hotel. In addition, back office procedures and front office IT systems have been brought into line with the rest of the Group. The next step in the Signature strategy is to convert a number of the existing hotels to this standard and Shrigley Hall is the first of the original portfolio of hotels to be converted. This conversion is due to take effect at the end of September 2006.

Across the Group, a key strategy during 2006 is to identify and implement measures to counter-act the significant cost pressures (mainly rising energy costs) that are affecting the hotel industry as a whole. These measures include both revenue strategies and containment of controllable costs. As detailed below, the effect of this strategy is reflected in the Group achieving revenue and profitability growth which has outperformed the peer group.

As shown on the attached Consolidated Financial Statements, on a total Group basis (including all 20 hotels) DSH’s turnover for the 26 week period ended 2 July 2006 was £47.9m, generating hotel operating profit of £15.6m (excluding Walton Hall, turnover was £47.0m and hotel EBITDA was £15.9m). After depreciation, central and other costs, operating profit was £7.2m. Net interest payable was £11.6m and included £9.1m of interest on senior debt and £2.0m of interest on the deep discounted bonds which are owned by DSH shareholders. No tax is payable and the loss for the financial period was £4.4m.

Following its acquisition in June 2005 Walton Hall is undergoing a major redevelopment which will result in the conversion of 132 timeshare units into 195 bedrooms and the construction of a large conference centre. Due to the scale of the redevelopment the hotel is operating at minimal capacity, and is excluded from the comments that follow.
H1 2006
(Unaudited) H1 2005
(Unaudited)% change
Turnover£47.0m£46.1m1.8%
Hotel Operating Profit*£15.9m£15.2m4.3%
Occupancy66.5%68.1%(2.4%)
Average Room Rate£71.38£68.134.8%
Revenue per Available Room£47.45£46.402.3%
Total Revenue per Available Room£100.79£99.441.4%

* HOP is EBITDA for the individual hotels, excluding head office costs
The above figures exclude Walton hall which is under redevelopment. A reconciliation of the HOP reported above, of £15.9m, and the Operating Profit of £7.2m is shown with the Consolidated Profit and Loss Account.

The unaudited 2005 comparatives include pro-forma results for the hotels acquired during 2005 and will therefore differ from the 2005 results in the Consolidated Financial Statements.

On a like for like basis (excluding Walton Hall) turnover was 1.8% ahead of the prior year. Although occupancy was down by 1.6 percentage points, average room rate (ARR) increased by 4.8% giving an increase of 2.3% in revenue per available room. Leisure demand was slow in the first quarter impacting certain leisure reliant hotels, namely, Torquay, Shrigley, Redworth Hall and Troon. Demand was significantly stronger in the second quarter but leisure travel remains price sensitive and susceptible to competition from products such as budget airlines offering international travel deals to domestic tourists. The hotels in Edinburgh, Cardiff, Hinckley and Cheltenham are performing substantially ahead of expectations as both the corporate and meetings segments have been very strong in these locations. Total DSH room revenue from these segments has increased 6% year on year.

The focus of the Group’s revenue strategy is on maximising ARR on high occupancy nights as this results in greater profit conversion versus occupancy-led revenue growth. This strategy has been a key element in the increase in hotel operating profit of 4.3% over the previous year. As anticipated, energy costs for the period were around £630,000 higher than the comparable period and without this increase EBITDA would have increased 8.4%. In particular EBITDA at Cheltenham was ahead of the prior year by 44% driven by aggressive sales and marketing strategies and at Hinckley by 41%, benefiting from the impact of the renovation.

Direct operating costs, including payroll, have been tightly controlled resulting in a £525,000 reduction year on year and leading to profit conversion during this period of 33.9% (or 35.2% before the increase in energy costs) versus 33.1% in the previous year.

Interest expense was around £1.4 million greater than the previous year, mainly reflecting the cost of the facility used to acquire the three Furlong hotels (100% debt funded) and funds drawn for the Hinckley renovation.

Dividends

DSH’s policy remains to distribute its net surplus cash flow from time to time. Trading in the second half of the year is normally much stronger than the first half and the Board of DSH will review payments of dividends in respect of the current financial year at the conclusion of the year. During the period DSH paid a dividend of £397,800.

Property valuation

The DSH hotel portfolio was valued by Colliers Robert Barry at £445 million (excluding Walton Hall but including the three Furlong hotels) as at 2 July 2006. The 2005 interim valuation by Colliers Robert Barry was £314 million for the 16 hotels owned by the Group at that time. The revaluation increment shown in the financial statements of approximately £90 million mainly relates to these 16 hotels and represents a 30% increase over the previous year’s valuation. The impact of this is to increase the DSH net asset value per share by 117% since the year end (124% since June 2005).

Segmenting the portfolio to show the various acquisitions made by the Group, the current valuation represents a per room value as follows:

• 19 hotels: £173,000;
• 16 hotels excluding Furlong: £169,000;
• Original 13 Paramount hotels: £182,000.

The valuation above is based on guidelines issued by RICS and this requires that each property is valued taking into account its individual trading potential. The valuation methodology also assumes that each property is sold individually. In the opinion of Colliers Robert Barry, if the Group’s hotels were valued and sold as one portfolio a premium over the £445 million valuation would be realised.

The net asset value per share at 2 July 2006, after allowing for the carried interest that would be payable to the DSH Founder Investors, is 375p against 173p at the year end.

Property development

In line with stated strategy, DSH continues to exploit the development potential of its property portfolio through room additions. The room additions for 2006 are summarised as follows:

HotelNumber of roomsStatus
New buildWithin existing structureTotalCompletedWork commencedTo be commencedEstimated completion

Cheltenham99 March 2006
Walton Hall6464March 2006Q1 2007
Redworth Hall40343March 2006January 2007
Lygon99August 2006Q1 2007
Shrigley Hall18321Q4 2006Q4 2007
Carlton 2424Q4 2006Q2 2007
Stirling44Q4 2006Q1 2007
Majestic1010Q3 2006Q1 2007
Torquay99Q4 2006Q2 2007
Daventry1515Q4 2006Q2 2007
Brighton22Q4 2006Q1 2007

58152210

In addition to all of the above, planning permission has been secured and construction has started on a 1,300 square metre conference facility at Paramount Walton Hall & Spa. This is significantly larger than the original plan for an 800 square metre centre. Also, a major renovation of The Lygon Arms is currently being planned and will be started by the beginning of 2007.

DSH is also committed to enhancing earnings by renovating existing hotel rooms and public areas where a business case exists. The following is a summary of activity in this area:

• Paramount Shrigley Hall, Cheshire – 8 bedrooms and main bar completed; 24 bedrooms refurbishment started;
• Paramount Cheltenham Park, Cheltenham – refurbishment started on 23 rooms;
• Paramount Redworth Hall, County Durham – 8 bedrooms and reconfiguration of reception completed;
• Paramount Imperial, Torquay – 29 bathrooms completed;
• Paramount Daventry, Northamptonshire – refurbishment started on 101 bedrooms

Prospects

Significant investment has been made in re-launching the Paramount website which has seen an increase of over 100% in revenue booked in the first half of the year as compared to the same period last year. The Paramount Special Events programme was also launched this year bringing with it a new income stream for the hotels. In the face of a challenging market in the leisure sector, these initiatives are expected to yield substantial benefits for the remainder of 2006 and going forward.

Valuations have increased over the period. Nevertheless, DSH continues to seek “bolt-on” acquisitions which fit its investment criteria and is focused on purchasing synergistic assets with the right geographic fit for its portfolio and the appropriate facilities to attract leisure and corporate customers. Considerable development potential still remains within the existing portfolio and DSH will continue to seek to exploit these opportunities.

Employees
The Directors thank the staff for their continuing commitment, enthusiasm and energy.

Charles Prew – 18 September 2006

Dawnay Shore Hotels plc
Consolidated Profit and Loss Account
26 Weeks Ended 2 July 2006
Unaudited
26 weeks ended
2 July 2006Unaudited
26 weeks ended
3 July 2005Audited
Year ended
1 January 2006
£’000£’000£’000

Turnover47,90240,424 89,458

Cost of Sales(5,765)(4,951)(10,932)

Gross profit42,13735,473 78,526

Administrative Expenses(34,973)(29,355)(60,214)

Operating Profit7,1646,118 18,312

Profit/(loss) on sale of fixed assets--127
7,1646,11818,439

Interest receivable and similar income86186 318
Interest payable and similar charges(11,696)(10,172)(20,772)

Profit on ordinary activities before taxation(4,446)(3,868)(2,015)

Tax on profit on ordinary activities--1,554

Dividends(398)--

Retained profit / (loss) for the financial period(4,844)(3,868)(461)

 
Note: Reconciliation of Operating Profit 2 July 2006
£m
Hotel EBITDA excluding Walton Hall15.9
Walton Hall Loss(0.3)
Depreciation and Amortisation(4.2)
Central and other costs(4.2)
Operations Profit as shown above7.2

Dawnay Shore Hotels plc
Consolidated Balance Sheet
As at 2 July 2006
Unaudited
As at 2 July 2006Unaudited
As at 3 July 2005Audited
As at 1 January 2006
£’000£’000£’000

Fixed assets
Intangible assets – Goodwill9,6527,505 9,846
Tangible assets467,973333,217 375,207

477,625340,722 385,053

Current Assets
Stocks 832729 877
Debtors7,5098,020 7,564
Cash at Bank and in hand2,1904,618 6,474

10,53113,367 14,915

Creditors amounts falling due within 1 year(22,583)(23,485)(23,373)

Net current liabilities(12,052)(10,118)(8,458)

Total assets less current liabilities465,573330,604376,595

Creditors amounts falling due after more than 1 year(307,040)(257,968)(302,482)
Provision for liabilities and charges(9,478)(10,635)(9,495)

Net assets149,05562,002 64,618


Capital and reserves
Called up share capital1,6581,658 1,658
Share premium account32,13732,137 32,137
Revaluation reserve120,46132,026 31,180
Profit and loss account(5,201)(3,819)(357)

Equity shareholders funds149,05562,002 64,618

Dawnay Shore Hotels plc
Consolidated Cash Flow Statement
26 Weeks Ended 2 July 2006
Unaudited
26 weeks ended
2 July 2006Unaudited
26 weeks ended
3 July 2005Audited
As at 1 January 2006
£’000£’000£’000

Net cash inflow from operating activities10,21213,958 28,051

Returns on investments and servicing of finance
Interest received86186 318
Interest paid(9,575)(10,980)(19,436)
Interest paid on finance leases(37)(40)(75)
Dividends paid(398)--

Net cash outflow from returns on investments and servicing of finance(9,924)(10,834)(19,193)

Taxation
Corporation tax paid-

Capital expenditure
Purchase of tangible fixed assets(7,351)(2,383)(7,565)
Sale of tangible fixed assets-- 1,114

Net cash outflow from capital expenditure and financial investment(7,351)(2,383)(6,451)

Acquisitions
Purchase of Hotels-(76,807)(75,104)
Purchase of subsidiary undertakings-(16,716)
Cash balances less overdraft acquired with hotels and subsidiary undertakings--(51)

Net cash outflow from acquisitions-(76,807)(91,871)

Net cash outflow before financing(7,063)(76,066)(89,464)

Financing
Issue of share capital-1,320 1,320
New term loans raised4,55158,400 97,325
New bonds issued-1,200 1,200
Bank loan note issued--3,595
Bank loans repaid-(652)(25,389)
Bonds repaid (1,591)(1,788)(3,475)
Term loan issue costs-(1,503)(2,065)
Repayment of principal under finance leases(181)(220)(499)
Net cash inflow from financing(2,779)56,757 72,012

Decrease in cash (4,284)(19,309)(17,452)