To: Business Editor
15th February 2000
For immediate release
The following announcement was today issued to the London Stock Exchange.
MANDARIN ORIENTAL INTERNATIONAL LIMITED
1999 PRELIMINARY ANNOUNCEMENT OF RESULTS
Results
"The proposed Rights Issue will allow the Group's strategy of expansion to gain momentum, thereby building our brand and laying the foundation for long term growth."
Simon Keswick, Chairman
"The costs associated with our expansion and the refurbishment of our London hotel will impact our full year results in 2000, but we continue to focus on improving profitability in the near term, while maintaining our commitment to product and service excellence. I am confident that our strategy, supported by our increased funding, will enable us to maximise the exciting opportunities that lie ahead."
Edouard Ettedgui, Chief Executive Officer
The final dividend of US¢0.85 per share will be payable on 7th June 2000, subject to approval at the Annual General Meeting to be held on 31st May 2000, to shareholders on the register of members at the close of business on 10th March 2000. The ex-dividend date will be on 6th March 2000, and the share registers will be closed from 13th to 17th March 2000, inclusive.
MANDARIN ORIENTAL INTERNATIONAL LIMITED
PRELIMINARY ANNOUNCEMENT OF RESULTS
FOR THE YEAR ENDED 31ST DECEMBER 1999
PERFORMANCE
Mandarin Oriental International Limited today announced that the consolidated profit before interest and tax for the year ended 31st December 1999 was US$43 million, a decrease of 11% from 1998, excluding non-recurring items. This primarily reflects lower room rates in Hong Kong, the impact of the renovation programme in London and an increase in infrastructure costs to support the Group's expansion in the United States. As a result of lower interest and tax charges, the consolidated profit after tax and minority interests was US$17 million, a decline of 10% compared with the previous year, excluding the impact of non-recurring items.
Earnings per share were US¢2.46, compared with US¢2.75 in 1998, excluding non-recurring items.
A Directors' review of the valuation of the Group's hotel properties at the end of 1999, in consultation with its independent valuers, has indicated that the significant decrease in values recorded in 1998 has been partially reversed. Valuation increases of US$135 million on the Group's two Hong Kong properties have been reflected in the balance sheet. Net asset value per share was, therefore, US$1.17, an increase of 21%.
The Directors recommend a final dividend of US¢0.85 per share. This, together with the interim dividend of US¢0.50 per share, will make a total annual dividend of US¢1.35 per share, unchanged from 1998.
CORPORATE EVENTS
The Group has announced its intention to raise some US$150 million through a fully-underwritten issue of ordinary shares and convertible bonds by way of rights. The proceeds will enable Mandarin Oriental to make further investments in line with its expansion strategy. Jardine Strategic, the Company's principal shareholder, has committed to take up its entitlement and participate in the underwriting.
GROUP REVIEW
Turning to the operations, the Chairman, Simon Keswick, said that the Group has responded well to the challenging trading environment in Asia. Occupancies improved in some regional markets, particularly in the latter part of 1999, but price competition remained intense. Most Group hotels maintained or enhanced their competitive position in their respective local markets.
In Hong Kong, room rates at both Mandarin Oriental and The Excelsior continued to decline in 1999, in line with competition. Mandarin Oriental achieved a significant improvement in occupancy over 1998, and both hotels continued to streamline overhead structures, while preserving their high levels of customer service.
In London, Mandarin Oriental Hyde Park had a difficult year due to the renovation programme, which adversely affected both occupancy and average room rate. To complete the restoration, the hotel closed at the end of November 1999 for approximately five months. When it is re-launched in May, it will be one of London's most luxurious hotels.
Higher occupancy and effective cost control at Mandarin Oriental, Manila were largely offset by lower average room rates. In Jakarta, both occupancy and average room rates continued to be weak, reflecting the volatility in Indonesia over the past year.
Of the Group's associate hotels, The Oriental, Bangkok increased its profit contribution as the hotel's unique reputation continued to attract discerning guests in a competitive market. General market conditions in Macau continued to be difficult, although the hotel benefited at the end of the year from the activities leading up to the resumption of sovereignty by China and the opening of its new resort facilities.
Performance at The Oriental, Singapore was stable with a reduction in overheads offsetting a decline in average room rates. Kahala Mandarin Oriental, Hawaii, however, improved its performance with increased penetration of its US market offsetting continued weakness in tourist arrivals from Japan.
Mandarin Oriental, Kuala Lumpur has now firmly established itself as the pre-eminent hotel in the city. However, room rates remain depressed because of significant oversupply.
DEVELOPMENTS
The Group entered into a joint venture in September with a US-based consortium of real estate developers and investors to build a luxury Mandarin Oriental hotel in New York for approximately US$200 million. Mandarin Oriental will manage the hotel and own 50% of the hotel property. The 250-room hotel will be part of the prestigious Columbus Circle project, a mixed-use real estate development at the south-west corner of Central Park. The property is due to open in late 2003.
Work continues on the 325-room Mandarin Oriental in Miami, Florida, in which the Group has a 25% interest. The hotel is expected to open at the end of 2000.
Additional opportunities are actively under review. The Group has announced that it is in negotiation for the possible acquisition of The Rafael Group, a collection of six luxury hotels and resorts.
OUTLOOK
In conclusion, Simon Keswick said, "Recovery in our principal markets in Asia is expected to continue, but the scale of recovery, particularly in room rates, is difficult to predict. However, the full year results for 2000 will be impacted by the costs associated with the closure of the London hotel, an increase in capital expenditure and the build up of our corporate cost structure in support of the Group's growth strategy.
"The proposed Rights Issue will allow the Group's strategy of expansion to gain momentum, thereby building our brand and laying the foundation for long term growth."
CHIEF EXECUTIVE'S REVIEW
OVERVIEW
Throughout 1999, Mandarin Oriental continued to be impacted by the fall in visitor arrivals to most Asian destinations, and the resulting fierce price competition. However, in certain markets, particularly Hong Kong, there was a welcome increase in travel and tourism from October onwards.
Throughout this challenging year, most of our hotels focused successfully on improving their leadership position in their own market and streamlining cost structures without impacting the Group's reputation for providing award-winning service. At the same time, we have continued to invest in these hotels to ensure that Mandarin Oriental's high standards of products and services are maintained, despite the challenges presented by the Asian economic downturn.
Mandarin Oriental, one of the strongest brands in the luxury hotel industry, continues to build on its emotional bond with guests - a bond that is underpinned by the quality of our product and the Group's widely acclaimed reputation for outstanding service. The Mandarin Oriental reputation relies heavily on the dedication and motivation of our people, who thrive in a strong service culture aimed at delighting our guests and providing them with memorable experiences.
We have progressed with our vision for Mandarin Oriental to be recognised as one of the top global luxury hotel groups. Our new project in New York fits with our growth strategy, which is to leverage our brand by doubling our number of rooms in key international cities, adding value to our current portfolio of properties.
Nonetheless, we have recognised the need to increase our investment to achieve our growth objectives earlier and to create more value. We have therefore invited our shareholders to take additional ordinary shares and convertible bonds by way of rights. The proceeds of some US$150 million will enable us to react swiftly to appropriate expansion and acquisition opportunities. Our announcement that we are in negotiation for the possible acquisition of The Rafael Group, a collection of six luxury hotel and resort properties in key international destinations, represents such an opportunity. As we embark on this expansion phase, we will maintain a disciplined approach in determining values, consistent with the best interests of our shareholders.
THE WAY FORWARD
Our strategic objectives are aligned with our vision. Success in delivering them will ensure that we build for the future and improve our profitability, while maintaining our commitment to excellence. We will:
These five key strategic objectives will be addressed through a number of specific initiatives:
(1) Improving our competitive position in each market
In every market in which we operate, our hotels will redouble their efforts to maintain or enhance their leadership positions, by executing plans that are specifically tailored for their competitive environment. In particular, cost structures will continue to be streamlined, without compromising the guest experience as our ability to charge premium rates relies on our reputation for outstanding service.
Each Mandarin Oriental hotel is benchmarked against a targeted control group of local competitors, in terms of both guest services and financial returns. Similarly, each property is accountable for its own performance, with its management team being measured for incentive compensation against a set of pre-agreed financial and non-financial indicators, aligned in each case with our Group's strategic objectives. This decentralized approach to decision making is an integral component of our strategy to be market leaders in each of the locations in which we operate.
(2) Relaunching Mandarin Oriental Hyde Park, London
Mandarin Oriental Hyde Park is set to be London's most prestigious deluxe hotel, when it re-opens in Spring 2000. This famous heritage building is in the last phase of a total renovation and, on completion, will offer guests exquisite accommodation and restaurants, a unique full service spa, and Mandarin Oriental's legendary service. As a result of the current closure and the impact of having retained all our staff, the hotel will make a loss in the first half of 2000. Once the hotel reopens, however, the revenues will be boosted by the new facilities, with the full profit impact being registered from 2001.
(3) Doubling our number of rooms under operation
Success in developing our brand is central to our overall strategy. We are seeking to move gradually away from relying on income generated by owned hotels towards leveraging the strength of our brand by obtaining higher return management contracts. However, in most cases, a level of equity ownership will still be required to ensure a long-term foothold in key markets.
The recent additions to our collection of hotels are good examples of this strategy. Our 325-room hotel under construction in Miami, Florida, which is 25% owned, will come on stream in late 2000. In September, we announced a joint venture agreement to develop and manage a 250-room luxury hotel in New York, which will open in late 2003. This is a unique opportunity to develop a new hotel in the heart of Manhattan with experienced partners and prestigious neighbours. Mandarin Oriental will own 50% of the hotel property in which we will invest US$50 million, of which US$20 million will be in the form of an interest bearing mezzanine loan.
By developing in key cities, we will add value to our existing US-based hotels, while maximizing the efficiency of marketing across this large and profitable market.
Achieving our objective to double the number of rooms in key international cities in the United States, Europe and Asia will provide us with a more balanced geographic mix of properties. It will also position the Group well to manage the inevitable cycles of our industry, and their effect on our balance sheet and cashflow.
(4) Strengthening our corporate core competencies
Since mid year we have carefully built up our global sales network and all areas of communications technology, while hotel operations, financial control and human resources have all been strengthened. In the first half of this year, we will raise our brand awareness globally by launching a US$5 million international advertising campaign, which is more than double our advertising expenditure in previous years. In addition, our US-based regional management structure is overseeing our growing operations there, as well as facilitating development opportunities.
Developing these core competencies cannot be delayed as they are critical to the success of our growth strategy. As a result, we anticipate the Group overheads in 2000 will not be fully offset by the flow of management fees from our operating hotels. However, they will be profitably leveraged as we build up the number of properties under operation.
(5) Ensuring a strong cash flow and balance sheet
Our cash flow from operations in 2000 will be dependent on the scale of recovery in Asia, particularly in room rates. Moreover, our capital expenditure will increase, mainly due to the completion of the restoration in London and the investment in our new hotel in New York, which is estimated to be US$30 million in 2000. However, we enter this investment phase with relatively low gearing, and from 2001 profits will benefit from the full contribution of the wholly-owned London property. The new financial resources available from the proposed Rights Issue will enable the Group to accelerate its search for further expansion and acquisition opportunities in the United States and elsewhere, while maintaining a secure financial position.
In conclusion, with Mandarin Oriental's growth strategy gaining momentum, our vision to be recognised as one of the top global luxury hotel groups is firmly in place. The costs associated with this expansion and the refurbishment of our London hotel will impact our full year results in 2000, but we continue to focus on improving profitability in the near term, while maintaining our commitment to product and service excellence. I am confident that our strategy, supported by our increased funding, will enable us to maximise the exciting opportunities that lie ahead.
Edouard Ettedgui
Chief Executive Officer
15th February 2000
1 ACCOUNTING POLICIES AND BASIS OF PREPARATION
The financial information contained in this announcement has been based on the audited results for the year ended 31st December 1999 which have been prepared in accordance with International Accounting Standards.
In 1999, the Group implemented the following revised or new International Accounting Standards: IAS 1 (revised 1997), Presentation of Financial Statements; IAS 10 (revised 1999), Events After the Balance Sheet Date; IAS 14 (revised 1997), Segment Reporting; IAS 16 (revised 1998), Property, Plant and Equipment; IAS 17 (revised 1997), Leases; IAS 19 (revised 1998), Employee Benefits; IAS 22 (revised 1998), Business Combinations; IAS 28 (revised 1998), Accounting for Investments in Associates; IAS 31 (revised 1998), Financial Reporting of Interests in Joint Ventures; IAS 35, Discontinuing Operations; IAS 36, Impairment of Assets; IAS 37, Provisions, Contingent Liabilities and Contingent Assets; and IAS 38, Intangible Assets.
IAS 10 (revised 1999), IAS 16 (revised 1998), IAS 22 (revised 1998), IAS 28 (revised 1998), IAS 31 (revised 1998), IAS 36, IAS 37 and IAS 38 are applied in advance of their effective dates.
With the exception of IAS 10 (revised 1999), IAS 19 (revised 1998) and IAS 38, there are no changes in accounting policy that affect profit or shareholders' funds resulting from the adoption of the new standards in these financial statements, as the Group was already following the recognition and measurement principles in these standards.
In accordance with IAS 10 (revised 1999), dividends proposed or declared after the balance sheet dates are not recognised as a liability at the balance sheet date. This is a change in accounting policy as in previous years dividends proposed or declared after the balance sheet date were recognised as a liability at the balance sheet date. The effect of this change has been to increase shareholders' funds at 1st January 1998 and 1999 by US$13.0 million and US$6.0 million respectively.
In accordance with IAS 19 (revised 1998), pension accounting costs for defined benefit plans are assessed using the projected unit credit method. Under this method, the costs of providing pensions are charged to the consolidated profit and loss account so as to spread the regular cost over the service lives of employees in accordance with the advice of qualified actuaries who carry out a full valuation of major plans every year. The pension obligations are measured as the present value of the estimated future cash outflows by reference to market yields on high quality corporate bonds which have terms to maturity approximating the terms of the related liability. Plan assets are measured at fair value. All actuarial gains and losses are spread forward over the average remaining services lives of employees. This is a change in accounting policy as in previous years pension costs were assessed using the attained age normal method and pension obligations were discounted at the expected rate of return on plan assets. The comparative figures for 1998 have been restated to reflect the change in policy. The effect of this change has been to increase shareholders' funds by US$11.4 million at 1st January 1998 and 1999. There has been no material effect on the net loss for 1998.
In accordance with IAS 38, pre-opening costs are expensed as they are incurred. This is a change in accounting policy as in previous years pre-opening costs were capitalised and amortised over five years from the date of opening. The comparative figures for 1998 have been restated to reflect the change in policy. The effect of this change has been to decrease shareholders' funds at 1st January 1998 and 1999 by US$2.3 million and US$2.4 million respectively. There has been no material effect on the net loss for 1998.
Other than described above, there have been no other changes to the accounting policies described in the 1998 financial statements.
2 SEGMENTAL INFORMATION
3 NON-RECURRING ITEMS
4 TAX
Tax on profits has been calculated at rates of taxation prevailing in the territories in which the Group operates. The Group's tax expense includes the reversal of deferred tax liabilities of US$2.1 million (1998: US$1.0 million) in respect of the United Kingdom.
5 EARNINGS PER SHARE
Basic earnings per share are calculated on the profit after tax and minority interests of US$17.4 million (1998: loss of US$4.4 million) and on the weighted average number of 705.6 million (1998: 703.8 million) shares in issue during the year. The weighted average number excludes shares held by the Trustee of the Senior Executive Share Incentive Schemes.
Diluted earnings per share are calculated on the weighted average number of shares after adjusting for the number of shares which are deemed to be issued for no consideration under the Senior Executive Share Incentive Schemes based on the average share price during the year as follows:
Earnings per share excluding non-recurring items for 1998 were calculated on the profit after tax and minority interests and after adjusting for the non-recurring items of US$23.8 million.
6 TANGIBLE ASSETS AND CAPITAL COMMITMENTS
7 DIVIDENDS
A final dividend in respect of 1999 of US¢0.85 per share (1998: US¢0.85 per share) amounting to US$6.0 million (1998: US$6.0 million) is proposed and will be accounted for in the Consolidated Statement of Changes in Shareholders' Funds as an appropriation of revenue reserves in the year ending 31st December 2000.
8 CASH FLOW PER SHARE
Cash flow per share is calculated on the cash flows from operating activities of US$31.2 million (1998: US$23.3 million) and on the weighted average number of 705.6 million shares (1998: 703.8 million) in issue during the year.
9 ANNUAL REPORT
The Annual Report will be posted to shareholders on or about 25th April 2000. Copies may be obtained from Jardine Matheson International Services Limited, P.O. Box HM 1068, Hamilton HM EX, Bermuda; IRG plc, Bourne House, 34 Beckenham Road, Beckenham, Kent BR3 4TU, England and M & C Services Private Limited, 16 Raffles Quay #23-01, Hong Leong Building, Singapore 048581.
The final dividend of US¢0.85 per share will be payable on 7th June 2000, subject to approval at the Annual General Meeting to be held on 31st May 2000, to shareholders on the register of members at the close of business on 10th March 2000. The ex-dividend date will be on 6th March 2000, and the share registers will be closed from 13th to 17th March 2000, inclusive. Shareholders will receive their dividends in United States Dollars, unless they are registered on the Jersey branch register where they will have the option to elect for Sterling. These shareholders may make new currency elections by notifying the United Kingdom transfer agent in writing by 19th May 2000. The Sterling equivalent of dividends declared in United States Dollars will be calculated by reference to a rate prevailing ten business days prior to the payment date. Shareholders holding their shares through The Central Depository (Pte) Limited ("CDP") in Singapore will receive United States Dollars unless they elect, through CDP, to receive Singapore Dollars.
PROPOSED RIGHTS ISSUE
THE COMPANY ANNOUNCED A RIGHTS ISSUE OF ORDINARY SHARES AND CONVERTIBLE BONDS ON 15TH FEBRUARY 2000. THE RECORD DATE IS 22ND FEBRUARY 2000 AND CIRCULARS WILL BE POSTED TO SHAREHOLDERS ON 24TH FEBRUARY 2000. THE NEW ORDINARY SHARES, THE CONVERTIBLE BONDS AND THE ORDINARY SHARES WHICH MAY BE ISSUED ON CONVERSION OF THE CONVERTIBLE BONDS HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES OR TO US PERSONS.
For further information, please contact:
|
Mandarin Oriental Hotel Group International Limited Edouard Ettedgui/Peter Cowern Chantal Hooper |
(852) 2895 9288 (office) (852) 2895 9160 (office) |
|
Forrest International Limited David Dodwell/Sue Gourlay | (852) 2522 6475 (office) |
Full text of the Preliminary Announcement of Results and the Preliminary Financial Statements for the year ended 31st December 1999 can be accessed through the Internet at "http://www.irasia.com/listco/sg/mandarin".
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