Operating and Business Plan Update

Operating and Business Plan Update
20 May 2008

Since the IPO, Management has been actively executing its Business Plan with significant progress being made in terms of implementing portfolio and hotel and tavern accounting systems, finessing operating practices, implementation of group buying synergies and advancing development plans at a number of sites. The local Western Australian economy and dynamics, in contrast to some Eastern state markets, has proven to be as robust as anticipated providing a firm base for patronage support. The Board remains confident of the group’s prospects.

Having settled the last tavern in mid April and following the receipt of trading figures to the end of April, the Board has undertaken an earnings review to update the market as to how the Group is tracking vs. PDS Forecasts. With detailed information from all the hotels and taverns now at hand, Management is able to frame its forecasts with considerably more certainty than was the case when using pre IPO vendor accounts.

Management believes that the underlying reversionary FY09 profit is tracking close to its forecast, albeit the attainment of this level of profitability is about 3 months behind schedule. The reasons for this are detailed below and include staffing challenges and mix of business considerations not forecast in the PDS. Specifically, as these already identified issues are resolved, underlying annualised profit from the 2nd Quarter FY09 is expected to be tracking at around 9.0c, in line with the PDS forecast. Given the 3 month delay pre expected attainment, the actual full year FY09 EPU and DPU is expected to be around 8.35c, reflecting the lower result up to the date when benefits from the full implementation of programs are expected to flow. Profit/DPU results for subsequent periods are expected to grow from the higher underlying reversionary tracking rate, rather than the lower passing outcome.

The Board notes the revised FY09 guidance does not take account of any revenue growth that may accrue as a result of initiatives to build the off-premise liquor offer, yet overheads from the two personnel driving this program have been fully expensed. Should potential upside be realised, the 9.0c tracking rate could be exceeded.

The forecast also excludes any profit uplift attributable to earnings generated by the proceeds from the realisation of 0% yielding land at some sites. This could potentially constitute a material part of the CXH value proposition and management have spent considerable time since the IPO advancing the development/realisation process.

Given the lag to target attainment, the FY08 result will be impacted. CXH is now forecasting a net profit (excluding extraordinary items) of around $0.1M which represents an EBITDA shortfall of $1.9M. The Board notes however that the 4 month period of weighted hotel and tavern ownership in FY08 was viewed as a transitioning period during which it could apply more contemporary systems/processes and personnel, in order to position the group for FY09 and beyond. Accordingly the Board will review the level of its distribution payout (PDS forecast 1.35c) closer to the end of FY08.

In retrospect, CXH underestimated the time required to implement some changes with pre-existing personnel quality being a bigger hurdle than anticipated. While this outcome is regrettable, management believes its already actioned plans, are addressing the issues with much of the cost base already lowered to anticipated levels. With the remaining issues requiring change clearly identified, and other priorities already addressed, Management is now rolling through these items. Management’s view remains that these are issues that can be readily addressed via the application of already determined courses of action and consequently consider them to be of a non-recurring nature.

Having regard to (i) current trading conditions and (ii) programs in place to address identified issues, the Board is confident regarding future prospects. The group’s debt is fixed for 5 years and at 47% of assets, is within the targeted band. Accordingly the Board will continue to review capital management alternatives including share buybacks should pricing not reflect perceived prospects. A potential source of funding could be from proceeds from the realisation of surplus 0% yielding land.

In terms of the local trading environment, the WA/Perth market is characterised by substantially different conditions than that of the East Coast market where some states are suffering from the introduction of smoking bans. The local economy remains very robust with the West Australian budget released on the 8^th of May foreshadowing 6.25% Gross State Product growth in FY09 and 2.5% employment growth. Our forecasts do not allow for additional momentum from the state of the local economy.

Major items impacting FY08 Variance;

$270K interest income shortfall given the IPO was 3 weeks later than the PDS forecast
$550K staff rostering inefficiencies not implemented by pre-existing management post settlement and non-recurring post July 08
$660K Gross Profit sales mix differential versus expectations
$100K of one off relocation costs not forecast
Excludes any revaluation gains from Interest Rate Swaps

Major items impacting FY09 Variance;

Tracking rate for FY09 from 1^st October 08 at 9.0c DPU
Albion Hotel and Princess Rd Tavern sites re-forecast $1.1M GOP lower than PDS based on pro-active decision of accelerating redevelopment opportunities which will not be realised till FY10 and FY11
Peel Alehouse refurbishment delay to utilise revenue opportunities from substantial internal building work programme requiring council approval. $100K impact on FY09. Tracking rate post completion 1^st October 08 forecast above PDS expectation
Tavern management transition programme to be finalised in all venues by 1^st October 08

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Bryan Northcote CEO (02) 8908 9500	Regan Cheriton CFO (02) 8908 9500	Tim Allerton City Public Relations (02) 9267 4511