Report on the audit of the financial statements
Opinion
We have audited the financial statements of Dalata Hotel Group plc (‘the Company’) and its consolidated undertakings (‘the Group’) for the year ended 31 December 2023, contained within the reporting package 635400L2CWET7ONOBJ04-2023-12-31-en.zip which comprise the consolidated statement of profit or loss and other comprehensive income, the consolidated and Company statements of financial position, the consolidated and Company statements of changes in equity, the consolidated and Company statements of cash flows and related notes, including the summary of material accounting policies set out in note 1.
The financial reporting framework that has been applied in their preparation is Irish Law, including the Commission Delegated Regulation 2019/815 regarding the single electronic reporting format (ESEF) and International Financial Reporting Standards (IFRS) as adopted by the European Union and, as regards the Company financial statements, as applied in accordance with the provisions of the Companies Act 2014.
In our opinion:
- the financial statements give a true and fair view of the assets, liabilities and financial position of the Group and Company as at 31 December 2023 and of the Group’s profit for the year then ended;
- the Group consolidated financial statements have been properly prepared in accordance with IFRS as adopted by the European Union;
- the Company financial statements have been properly prepared in accordance with IFRS as adopted by the European Union, as applied in accordance with the provisions of the Companies Act 2014; and
- the Group consolidated financial statements and Company financial statements have been properly prepared in accordance with the requirements of the Companies Act 2014 and, as regards the consolidated financial statements, Article 4 of the IAS Regulation.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (Ireland) (ISAs (Ireland)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s Responsibilities section of our report. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Our audit opinion is consistent with our report to the Audit and Risk Committee.
We were appointed as auditor by directors on 30 June 2016. The period of total uninterrupted engagement is the eight years ended 31 December 2023. We have fulfilled our ethical responsibilities under, and we remained independent of the Group in accordance with, ethical requirements applicable in Ireland, including the Ethical Standard issued by the Irish Auditing and Accounting Supervisory Authority (IAASA) as applied to public interest entities. No non-audit services prohibited by that standard were provided.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the Group’s and Company’s ability to continue to adopt the going concern basis of accounting included consideration of the inherent risks to the Group’s business model and how those risks might affect the Group’s and Company’s financial resources or ability to continue operations over the going concern period.
The risk that we considered most likely to adversely affect the Group’s and Company’s available financial resources over this period was the potential impact from market uncertainty, due to external geopolitical and economic factors outside of the Group’s control, on consumer demand and the cost base of the Group.
We evaluated the going concern assessment by carrying out the following procedures among others:
- considering the cash and undrawn bank loan facilities available to the Group and the related covenants in the facilities agreement which are applicable in the going concern period; and
- analysing the base-case and alternative downside scenario cashflow projections prepared by management showing forecast available liquidity and considering the reasonableness of the underlying assumptions.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group’s or the Company’s ability to continue as a going concern for a period of at least twelve months from the date when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
In relation to the Group’s and the Company’s reporting on how they have applied the UK Corporate Governance Code and the Irish Corporate Governance Annex, we have nothing material to add or draw attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting.
Detecting irregularities including fraud
We identified the areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements and risks of material misstatement due to fraud, using our understanding of the Group’s industry, regulatory environment and other external factors and inquiry with the directors and other management. In addition, our risk assessment procedures included:
- Inquiring with the directors and other management as to the Group’s policies and procedures regarding compliance with laws and regulations, and identifying, evaluating and accounting for litigation and claims, as well as whether they have knowledge of non-compliance or instances of litigation or claims.
- Inquiring of directors, the Audit and Risk Committee and internal audit as to the Group’s policies and procedures to prevent and detect fraud, including the internal audit function, and the Group’s channel for “whistleblowing”, as well as whether they have knowledge of any actual, suspected or alleged fraud.
- Inquiring of directors, the Audit and Risk Committee and internal audit regarding their assessment of the risk that the financial statements may be materially misstated due to irregularities, including fraud.
- Reading Board, Audit and Risk Committee, and Remuneration Committee meeting minutes.
- Considering remuneration incentive schemes and performance targets for directors and other management.
- Performing planning analytical procedures to identify any usual or unexpected relationships.
We discussed identified laws and regulations, fraud risk factors and the need to remain alert among the audit team.
Firstly, the Group is subject to laws and regulations that directly affect the financial statements including companies and financial reporting legislation. We assessed the extent of compliance with these laws and regulations as part of our procedures on the related financial statement items, including assessing the financial statement disclosures and agreeing them to supporting documentation when necessary.
Secondly, the Group is subject to many other laws and regulations where the consequences of non-compliance could have a material effect on amounts or disclosures in the financial statements, for instance through the imposition of fines or litigation. We identified the following areas as those most likely to have such an effect: health and safety, employment law, and environmental law.
Auditing standards limit the required audit procedures to identify non-compliance with these non-direct laws and regulations to inquiry of the directors and other management and inspection of regulatory and legal correspondence, if any. These limited procedures did not identify actual or suspected non-compliance.
We assessed events or conditions that could indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud. As required by auditing standards, we performed procedures to address the risk of management override of controls. On this audit we do not believe there is a fraud risk related to revenue recognition. We did not identify any additional fraud risks.
In response to the fraud risks, we also performed procedures including:
- Identifying journal entries to test based on risk criteria and comparing the identified entries to supporting documentation.
- Assessing significant accounting estimates for bias
- Assessing the disclosures in the financial statements
As the Group is regulated, our assessment of risks involved obtaining an understanding of the legal and regulatory framework that the Group operates in and gaining an understanding of the control environment including the entity’s procedures for complying with regulatory requirements.
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non-compliance with laws and regulations (irregularities) is from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it.
In addition, as with any audit, there remains a higher risk of non-detection of irregularities, as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. We are not responsible for preventing non-compliance and cannot be expected to detect non-compliance with all laws and regulations.
Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
In arriving at our audit opinion above, the key audit matters, in decreasing order of audit significance, were as follows:
Group: Property valuations - carrying value of land and buildings €1,478.6 million (2022: €1,281.3 million)
Refer to Audit and Risk Committee Report, Note 1 (xiii) to the consolidated financial statements (accounting policy for Property, Plant and Equipment), and Note 15 to the consolidated financial statements (financial disclosures - Property, Plant and Equipment).
The key audit matter
The Group has a large owned hotel property portfolio and under its accounting policies applies the revaluation model to its land and buildings included within property plant and equipment. This gives rise to a significant risk of material misstatement if periodic revaluations are not performed on an appropriate basis or are not accounted for in accordance with relevant accounting standards. The Group engages independent external experts to perform periodic hotel revaluations, which are inclusive of fixtures fittings and equipment, which the Group accounts for under the cost model. Appropriate allocations of hotel valuations must therefore be made between land and buildings, and fixtures and fittings and equipment for accounting purposes.
How the matter was addressed in our audit
Our audit procedures included among others:
- obtaining and documenting our understanding of the process for undertaking and accounting for property valuations and testing the design and implementation of the relevant controls therein;
- evaluating the approach and findings of the work performed by the independent external experts engaged by the Group in relation to hotel valuations;
- assessing and challenging the significant assumptions in the hotel valuation reports, as applied in the accompanying discounted cash flow valuation calculations, in relation to, among others, forecasts of future performance and the key drivers behind revenue and cost estimates, the impact of inflation, the relativities of discount rates and capitalisation rates applied in valuations of different hotels, and other matters specific to particular hotels or the markets in which they operate which impacted on valuations;
- testing the mathematical accuracy of all discounted cash flow models used in the valuations;
- considering the allocation of hotel valuations to land and buildings and fixtures, fittings and equipment;
- testing the amounts of individual property revaluation movements and their presentation either in other comprehensive income or in profit or loss, as appropriate; and
- evaluating the adequacy of the Group’s disclosures in relation to property valuations.
Our audit procedures did not identify any material issues with the significant assumptions adopted in the property valuations. We found the allocation of valuations between land and buildings and fixtures fittings and equipment and the inclusion of net revaluation gains in other comprehensive income (€92.1 million) and net reversals of revaluation losses in profit or loss (€2.0 million) for the year to be appropriate. We also found the disclosures in the financial statements relating to property valuations to be adequate in providing an understanding of the basis of the valuations.
Group: Impairment of hotel cash-generating units - carrying values of right of use assets €685.2 million (2022: €658.1 million), goodwill €53.8 million (2022: €30.2 million), and fixtures fittings and equipment €104.5 million (2022: €81.5 million).
Refer to Audit and Risk Committee Report, Note 1 (ix) (xiii) and (xv) to the consolidated financial statements (accounting policies for Leases, Property, Plant and Equipment, and Goodwill), Note 12 to the consolidated financial statements (financial disclosures - Impairment) and Note 14 to the consolidated financial statements (financial disclosures - Intangible Assets and Goodwill).
The key audit matter
As a result of the carrying amount of the net assets of the Group being more than its market capitalisation as at 31 December 2023, impairment assessments of all hotel cash generating units (CGUs) were required, in accordance with IAS36 Impairment of Assets as at 31 December 2023. The Group has material right-of-use assets, goodwill, and fixtures fittings and equipment. There is a risk that the carrying amounts of these assets could be more than the estimated recoverable amount. The recoverable amount of right-of-use assets, goodwill, and fixtures fittings and equipment is arrived at by forecasting and discounting future cash flows to determine value in use for each CGU. These cash flows are inherently judgmental and rely on certain significant assumptions including in particular:
- future trading performance
- discount rates; and
- future long-term growth rates
These impairment assessments are subject to estimation uncertainty due to economic conditions in relation to, among others, inflation and interest rates, and other external factors impacting on forecasting of future trading performance and the applicable discount rates for the purposes of estimating the recoverable amount of the CGUs. There is a significant audit risk of material misstatement in relation to the carrying values of right-of-use assets, goodwill, and fixtures fittings and equipment if impairment assessments are not performed on an appropriate basis or are not accounted for in accordance with relevant accounting standards.
How the matter was addressed in our audit
Our audit procedures included among others:
- obtaining and documenting our understanding of the impairment assessment process and testing the design and implementation of the relevant controls therein;
- evaluating the methodology applied by management in determining the CGUs and the estimates of the recoverable amounts of right-of-use assets, goodwill, and fixtures fittings and equipment to determine if they are in line with the requirements of the applicable financial reporting framework;
- evaluating significant assumptions used, in particular those relating to future trading performance, discount rates and future long-term growth rates;
- comparing the Group’s significant assumptions to externally derived data in relation to key inputs such as discount rates and future long-term growth rates, including where relevant the data in separately prepared independent property valuations;
- testing the mathematical accuracy of all discounted cash flow models used in the impairment assessment; and
- evaluating the adequacy of the Group’s disclosures in relation to impairment.
We found the resulting estimates of the recoverable amounts of right-of-use assets, goodwill, and fixtures fittings and equipment to be acceptable. Our audit procedures did not identify any material issues with the significant assumptions adopted in the impairment reviews. We found that the Group’s conclusions were appropriate that for the year ended 31 December 2023 there was no impairment of goodwill, right-of-use assets, and fixtures fittings and equipment. We also found the disclosures in the financial statements to be adequate in providing an understanding of the basis of the impairment assessments.
Group: Accounting for hotel acquisitions – including business combinations with consideration paid of €90.4 million
Refer to Audit and Risk Committee Report, Note 1 (iv) (xiii) to the consolidated financial statements (accounting policies for Business Combinations and Property, Plant and Equipment), Note 13 to the consolidated financial statements (financial disclosures – Business Combinations), Note 14 to the consolidated financial statements (financial disclosures – Intangible Assets and Goodwill), Note 15 to the consolidated financial statements (financial disclosures - Property, Plant and Equipment) and Note 16 to the consolidated financial statements (financial disclosures – Leases)
The key audit matter
During the year the Group acquired Clayton Hotel London Wall, Clayton Hotel Amsterdam American (remaining lease term of 18 years), Maldron Hotel Finsbury Park, and a development site in St. Andrew Square, Edinburgh.
Hotel acquisitions give rise to a risk of material misstatement, if each acquisition is not correctly identified, according to the particular facts and circumstances, as (i) a business combination or (ii) an asset purchase or (iii) another type of transaction (e.g. new lease) and is not accounted for in accordance with the relevant accounting standards.
In particular, for any business combinations, the consideration paid, the costs incurred, the identifiable assets and liabilities acquired, and any goodwill arising must all be identified, measured and recorded appropriately.
How the matter was addressed in our audit
Our audit procedures included among others:
- inspecting acquisition agreements and related documentation;
- examining the accounting papers prepared by Group management on the accounting treatment for each transaction, and evaluating the substance of the transactions;
- independently considering whether the acquisitions were business combinations or asset purchases or another type of transaction;
- reviewing the accounting for the amounts recorded in relation to these transactions and evaluating whether the relevant accounting standards for each had been applied appropriately;
- for business combinations:
- evaluating the identification of, and allocation of the purchase price to, the identifiable assets and liabilities acquired, and the measurement of goodwill, where applicable, arising on acquisition. We did this by considering the financial and other information pertaining to the acquisition and related documents.
- agreeing the dates of commencement of control, and therefore the inclusion in the Group’s results, of the acquired businesses to documentary evidence.
- agreeing acquisition-related costs to relevant supporting documentation and assessing whether they had been expensed correctly.
- for asset purchases, vouching the amounts recognised to purchase agreements and other appropriate documentary evidence of the value of assets and any liabilities acquired, consideration paid and other directly attributable costs.
- considering the adequacy of the Group’s disclosures in relation to acquisitions in the year.
We found that the acquisitions of Clayton Hotel London Wall and Clayton Hotel Amsterdam American have been correctly treated as business combinations and that the acquisitions of Maldron Hotel Finsbury Park and the Edinburgh development site have been correctly treated as asset purchases. We also found that appropriate disclosures have been made in notes 13 to 16 of the consolidated financial statements in relation to these acquisitions and the principal assets and liabilities (property, right-of-use assets, lease liabilities and goodwill) recognised by the Group as a result.
Company: Investment in subsidiaries €898.5 million (2022: €893.4 million)
Refer to Note 1 (i) to the Company financial statements (accounting policy for Investments in Subsidiaries) and Note 3 to the Company financial statements (financial disclosures – Investments in Subsidiaries).
The key audit matter
The investments in subsidiaries are carried in the Company’s financial statements at cost less any impairment. As the net assets of the Group are separately subject to property revaluations and impairment reviews as noted above, the carrying value of the investments in subsidiaries is not separately considered to give rise to a significant risk of material misstatement. However, due to the materiality of the investments in the context of the Company financial statements, this is considered to be the area that had the greatest focus of our overall audit of the Company financial statements.
How the matter was addressed in our audit
Our audit procedures included among others:
- obtaining an understanding of management’s approach to the assessment of investments in subsidiaries for potential impairment;
- considering the audit work performed in the current year in relation to property valuation and impairment of hotel cash-generating units; and
- comparing the carrying value of the investments to the net assets of the subsidiaries.
We found management’s assessment of the carrying value of investments in subsidiaries to be appropriate.
Our application of materiality and an overview of the scope of our audit
The materiality for the consolidated financial statements as a whole was set at €5.4 million (2022: €4.5 million).
This has been calculated with reference to a benchmark of consolidated profit before tax for the year ended 31 December 2023. Materiality represents approximately 5% (2022: approximately 4%) of this benchmark, which we consider to be one of the principal considerations for members of the Company in assessing the financial performance of the Group.
As profit before tax is the benchmark typically used to calculate materiality for listed groups which have reached a mature stage in their development, we determined that it was the most appropriate benchmark.
Performance materiality for the Group financial statements as a whole was set at €4.05 million (2022: €3.375 million), determined with reference to materiality, of which it represents 75% (2022: 75%).
In using a profit before tax benchmark for the current year, we applied a materiality measure of approximately 5%. A range of 3%-5% is typically used for a profit before tax benchmark, where applicable, in public company audits. Our materiality measure for 2023, although based on a profit before tax measure, also had regard to the level of revenue and net assets and represented approximately 0.9% of 2023 revenue and approximately 0.4% of net assets at 31 December 2023.
We reported to the Audit and Risk Committee any corrected and uncorrected misstatements we identified through our audit exceeding €0.27 million (2022: €0.225 million), in addition to any other audit misstatements below that threshold that warranted reporting on qualitative grounds.
Materiality for the Company financial statements as a whole was set at €4.0 million (2022: €4.0 million), determined with reference to a benchmark of total assets, of which it represents approximately 0.4% (2022: approximately 0.4%). Performance materiality for the Company financial statements as a whole was set at €3.0 million (2022: €3.0 million), determined with reference to materiality, of which it represents 75% (2022: 75%).
We used materiality to assist us to determine what risks were significant risks and to determine the audit procedures to be performed including those discussed above.
Our audit was undertaken to the materiality and performance materiality level specified above and was performed by a single Group engagement team.
Other information
The directors are responsible for the preparation of the other information presented in the Annual Report together with the financial statements. The other information comprises the information included in the Overview, Strategic Report, Corporate Governance Statement (which also includes the directors’ report), and Supplementary Information.
The financial statements and our auditor’s report thereon do not comprise part of the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work we have not identified material misstatements in the other information.
Based solely on our work on the other information undertaken during the course of the audit we report that, in those parts of the directors’ report specified for our consideration:
- we have not identified material misstatements in the directors’ report;
- in our opinion, the information given in the directors’ report is consistent with the financial statements; and
- in our opinion, the directors’ report has been prepared in accordance with the Companies Act 2014.
Corporate governance statement
We have reviewed the directors’ statements in relation to going concern, longer-term viability, and that part of the Corporate Governance Statement relating to the Company’s compliance with the provisions of the UK Corporate Governance Code and the Irish Corporate Governance Annex specified for our review by the Listing Rules of Euronext Dublin and the UK Listing Authority.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is materially consistent with the financial statements and our knowledge obtained during the audit:
- directors’ statement with regard to the appropriateness of adopting the going concern basis of accounting and any material uncertainties identified;
- directors’ explanation as to their assessment of the Group’s prospects, the period this assessment covers and why the period is appropriate;
- directors’ statement on whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities;
- directors’ statement on fair, balanced and understandable and the information necessary for shareholders to assess the Group’s position and performance, business model and strategy;
- Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks and the disclosures in the annual report that describe the principal risks and the procedures in place to identify emerging risks and explain how they are being managed or mitigated;
- section of the annual report that describes the review of effectiveness of risk management and internal control systems; and;
- section describing the work of the Audit and Risk Committee.
The Listing Rules of Euronext Dublin also require us to review certain elements of disclosures in the report to shareholders by the Board of Directors’ Remuneration Committee. We have nothing to report in this regard.
In addition, as required by the Companies Act 2014, we report, in relation to information given in the Corporate Governance Statement (which also includes the directors’ report), that:
- based on the work undertaken for our audit, in our opinion, the description of the main features of internal control and risk management systems in relation to the financial reporting process, and information relating to voting rights and other matters required by the European Communities (Takeover Bids (Directive 2004/EC) Regulations 2006 and specified for our consideration, is consistent with the financial statements and has been prepared in accordance with the Act;
- based on our knowledge and understanding of the Company and its environment obtained in the course of our audit, we have not identified any material misstatements in that information; and
- the directors’ report contains the information required by the European Union (Disclosure of Non-Financial and Diversity Information by certain large undertakings and groups) Regulations 2017.
We also report that, based on work undertaken for our audit, the information required by the Act is contained in the Corporate Governance Statement.
Our opinions on other matters prescribed by the Companies Act 2014 are unmodified
We have obtained all the information and explanations which we consider necessary for the purposes of our audit.
In our opinion the accounting records of the Company were sufficient to permit the financial statements to be readily and properly audited and the financial statements are in agreement with the accounting records.
We have nothing to report on other matters on which we are required to report by exception
The Companies Act 2014 requires us to report to you if, in our opinion:
- the disclosures of directors’ remuneration and transactions required by Sections 305 to 312 of the Act are not made;
- the Company has not provided the information required by Section 1110N in relation to its remuneration report for the financial year ended 31 December 2022;
- the Company has not provided the information required by section 5(2) to (7) of the European Union (Disclosure of Non-Financial and Diversity Information by certain large undertakings and groups) Regulations 2017 for the year ended 31 December 2022 as required by the European Union (Disclosure of Non-Financial and Diversity Information by certain large undertakings and groups) (amendment) Regulations 2018.
We have nothing to report in this regard.
Respective responsibilities and restrictions on use
Responsibilities of directors for the financial statements
As explained more fully in the Statement of Directors’ Responsibilities, the directors are responsible for: the preparation of the financial statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Group’s and Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (Ireland) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A fuller description of our responsibilities is provided on IAASA’s website at https://iaasa.ie/publications/description-of-the-auditors-responsibilities-for-the-audit-of-the- financial-statements.
The purpose of our audit work and to whom we owe our responsibilities
Our report is made solely to the Company’s members, as a body, in accordance with Section 391 of the Companies Act 2014. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.
Patricia Carroll
for and on behalf of
KPMG
Chartered Accountants, Statutory Audit Firm
1 Stokes Place
St. Stephen’s Green
Dublin 2
28 February 2024
