ASHTON HOTEL GROUP BACKGROUND AND BRIEF HISTORY

Ashton Hotel Group (AHG) commenced operation in 1967, marking its entry into the bustling Sydney hotel market. Initially operating three hotels, AHG has grown to the extent that it is now a listed company operating 43 hotels spread across Australia. AHG has focused on delivering quality hospitality in a competitive environment by diversifying its available room sizes and styles covering a broad range of price points to cater to various customer segments. While AHG owns 11 of these properties, it operates the others under management rights, a model that has allowed for broader reach without the capital intensity of outright ownership.

In 2019, AHG welcomed Loris Deschamps as its CEO. Deschamps brought with him extensive experience in hotel management, a vital asset for a company at AHG's stage. Although there has been higher than usual turnover of executives and property general managers under his leadership, AHG has seen a shift from aggressive expansion to a phase of consolidation. This has led to a focus on strengthening its existing assets, particularly across the lucrative east coast market of Australia.

Today, AHG stands as a significant player in the Australian hospitality industry. The company's long held practice of operating under a single brand across all its properties has helped establish a consistent and recognisable identity in the market.

CURRENT GOVERNANCE PRACTICES

AHG has a visible whistleblowing policy outlining the steps and protections available for the reporting of instances where the Code of Conduct is suspected of being breached. However, staff have privately expressed concerns regarding the

consequences for their role with AHG and career for those that report matters under the policy. The policy does not specify who or how investigations into claims will be conducted or managed. Staff have also noted the higher turnover of managerial staff under the leadership of Loris Deschamps and do not believe that their line managers are likely to support them in the event of a disclosure (a feature of the current policy is that anonymity is not provided).

AHG has an insider trading policy applicable to all staff. Apart from appropriate blackout periods where trading is not permitted, executives must disclose all intended transactions to the Board. AHG have not experienced any concerns regarding this policy.

AHG is concerned solely with its core business of owning and operating hotels. However, throughout its history, AHG have awarded several exclusive contracts with suppliers owned or materially connected with both directors and executives. Current prominent contracts include the exclusive supply of linen and towels to all hotels in the group by Karmen Services Pty Ltd (Karmen). Although none of the key personnel hold interest in Karmen, Chantelle Deschamps (wife of Loris) is the founder and remains a material shareholder in Karmen. Further, many of AHGs new employees are recruited by Skillwell, an employment agency that contracts Kynan Ling (a current director of AHG) to provide part-time CFO services. Larsen Gould Mings (LGM), AHGs auditor, has been persuaded that neither of these relationships require disclosure to shareholders.

The AHG Code of Conduct is highly visible to all employees. There are also regular communications from management highlighting what is currently held to be acceptable conduct. The Code has not been amended since its introduction in 2012, but several directives and other guidelines issued by management have highlighted exceptions and additional expectations. Further, AHG has an implicit culture of accepting rather than challenging internal rules and expectations.

CURRENT ACCOUNTING PRACTICES

AHG typically prefers to use straight-line depreciation for all equipment and fittings as it results in a smoother and more consistent allocation of expenses between years and properties. This has enabled management to extend the useful life of assets where appropriate, thereby reducing depreciation expense.

Several of AHG properties have been acquired from other operators. AHG has a practice of recognising higher levels of acquired goodwill and applying extremely

conservative valuations to purchased property plant and equipment. This has been beneficial for realising a strong return on these acquisitions within a short timeframe.

LGM (AHGs auditors) have regularly challenged the directors application of impairment testing, especially on aging buildings and acquired goodwill. However, the directors have seldom recorded impairment losses and LGM have remained unwilling to insist on amended estimates.

AHG have adopted a policy of recognising guest receipts as revenue in all instances other than bookings that are fully flexible. Also, during the Covid pandemic, AHG introduced a temporary policy of allowing affected guests credits for unused stays based on nights accommodation rather than a refund or a dollar amount. Accordingly, it has not been possible to make an accurate financial provision for any of these amounts.

AHG have a standing practice of revaluing both its properties and fittings on an annual basis. AHG relies on replacement values for all assets which has resulted in significant revaluation gains due to substantial increases in supplier prices and market scarcities.

CURRENT STRATEGIC PILLARS AND PERFORMANCE MEASURES

Mission Statement

To deliver consistent hospitality experiences across Australia by providing diverse, quality accommodations and services that cater to the varied needs of customers, while responsibly managing resources and fostering positive relationships with all stakeholders.

Vision Statement

AHGs vision is to be Australia's most dependable and recognisable hotel group, known for its commitment to excellence, sustainability, and accessibility in the hospitality industry. AHG aims to responsibly enhance its portfolio and services to meet market expectations, creating value for guests and shareholders.

Core Values

Integrity and transparency - uphold the highest standards of honesty and openness in all business dealings with a commitment to ethical practices, ensuring that policies are clear, fair, and consistently applied.

Sustainable Practices - embrace environmental stewardship by implementing sustainable practices in all operations striving for a balance between business growth and ecological responsibility.

Employee development and well-being - invest in employees' growth and well-being, recognising their contribution as key to success by creating a safe and supportive work environment.

Community engagement - actively engage with and contribute to the communities in which AHG operates featuring the creation and maintenance of strong local partnerships and support of community initiatives.

Performance measures

AHG evaluates performance by grouping its properties into regions (e.g., Sydney, Melbourne etc). Currently, return on investment (ROI) for the aggregate of properties in each region is used as the principal financial measure used.

Traditionally AHG has not used non-financial measures but has introduced a sustainability measure based on self-reported energy efficiency and waste reduction calculations for each property, aggregated into regional results.

CURRENT REMUNERATION PRACTICES Executives

Executive remuneration is determined by AHGs board after consultation with the CEO. The CEO has been responsible for several new hires and some recent terminations. The board is comfortable with this as Loris Deschamps has extensive industry experience, AHG has focused on incentivising members of executive with generous bonuses linked to annual ROI results. Long-term incentives in the form of both cash and equity are also utilised, but these are applied upon attaining a period of continuous service, rather than specific performance metrics.

Regional managers

Regional manager remuneration is determined and validated solely by the CEO with input from Roy de Palma, the CFO. AHG provides incentives to regional managers based

on aggregated ROI and reported sustainability metrics. These incentives are typically in the form of AHG travel credits and additional leave (which is typically difficult to use but may be paid out upon cessation of employment).

Other staff

All employees are entitled to annual AHG travel credits subject to the ROI performance of the property in which they are principally engaged. Skillwell (responsible for many of AHGs appointments) are entitled to additional payments calculated as 25% of the value of any bonuses received by staff that they have sources and referred

Identify any specific issues with the current use of ROI as a financial performance measure including an evaluation of its alignment with AHGs strategic priorities. Outline other strengths and weaknesses with current performance measurement highlighting the likely behavioural and stakeholder consequences. Based on the above, recommend appropriate performance measures that would align well with AHGs strategy and values

Question:

1. Remuneration reporting compare with ASX listed company

2. Ethical issues and concerns that should be brought to the attention of owners.