*Key Asian markets affected by highly competitive pricing
*Extended renovation at London hotel to be completed during five month closure
*Construction of Miami hotel commenced
Results(unaudited)Six months ended 30th June 1999
US$m
Combined total revenue of hotels under management 1999 163
1998 174
Change % -6
Trading profit
1999 20
1998 23
Change % -16
Profit after taxation and minority interests
1999 9
1998 10
Change % -3
Cash flows from operating activities
1999 12
1998 7
Change % +81
Earnings per share
1999 1.32
1998 1.37
Change % -4
Interim dividend per share
1999 0.50
1998 0.50
Change % 0
"The Group continues to respond vigorously to the twin challenge of the current difficult market conditions in Asia and the long-term development of our global brand."
Simon Keswick, Chairman
13th September 1999
The interim dividend of US¢0.50 per share will be payable on 23rd November 1999 to Shareholders on the register of members at the close of business on 1st October 1999. The ex-dividend date will be on 27th September 1999, and the share registers will be closed from 4th to 8th October 1999, inclusive.
PERFORMANCE
Mandarin Oriental International Limited today announced that the Group continued to be adversely affected by highly competitive pricing for hotel rooms in almost all Asian destinations in the first half of 1999. As a result, trading profit declined by 16% to US$20 million compared with US$23 million in the first six months of 1998. However, a reduced tax charge limited the decline in net profit for the period to only 3% at US$9 million.
Earnings per share for the half year were US¢1.32, a decrease of 4% from US¢1.37 in 1998.
The Board has declared an interim dividend of US¢0.50 per share which is unchanged from 1998. The dividend will be payable in cash.
GROUP REVIEW
Turning to the operations, the Chairman, Simon Keswick, said that in Hong Kong, both Mandarin Oriental and The Excelsior maintained their relative market positions. However, while room occupancies reflected some growth in visitor arrivals, the competitiveness of the marketplace significantly reduced average room rates in comparison with the first six months of 1998. Mandarin Oriental, Manila also saw a significant decline in room rates in its market despite improved occupancy. In Jakarta, both occupancy and room rates declined in a weak market. The renovation programme at Mandarin Oriental Hyde Park, London continued with the refurbishment of the guest rooms. The work is having a negative impact on the hotel's current performance, particularly given the temporary reduction in available rooms.
Of the associate hotels, The Oriental, Bangkok has achieved an increase in room rates, but the summer months have seen a reduction in business levels for the whole market. Mandarin Oriental, Macau and The Oriental, Singapore improved their operating performance despite reductions in average room rates in lacklustre markets. Kahala Mandarin Oriental, Hawaii has continued its steady improvement through focussed marketing and growing customer awareness.
The newest hotel, Mandarin Oriental, Kuala Lumpur has already attained the leading position in the city in terms of revenue per available room. However, room rates in Kuala Lumpur continue to be affected by an oversupplied market.
Overall, each hotel's operating costs have been reduced, which partially offset the erosion of profit margins resulting from the continued weakness in revenue.
DEVELOPMENTS
The Group's growth strategy is based on continuing to develop the Mandarin Oriental brand by adding luxury facilities to the existing hotels to enhance further the guests' experience and by increasing the number of hotels which the Group operates. Several opportunities in key international cities in the United States and Asia are being pursued.
Among the existing hotels, the restoration of Mandarin Oriental Hyde Park continues to be the most significant project. The current programme will be extended to include the creation of a luxurious health and beauty spa, unique to London, a re-design of the hotel's renowned Park restaurant, additional meeting rooms and an overhaul of the hotel's back-of-house infrastructure. To avoid significant disruption to the comfort of hotel guests, the hotel will close for approximately five months from November 1999 in order to complete the programme. This temporary closure has been timed to coincide with the hotel's quietest business period. All staff will be retained during closure in preparation for the relaunch of the hotel.
The revised cost of the total renovation programme is expected to be £43 million, of which £15 million had been spent by the end of last year. Due to the impact of the restoration on operations, the hotel's earnings before interest and depreciation for the current year will be approximately breakeven.
Construction of the 325 room Mandarin Oriental Brickell Key, Miami, in which the Group has a 25% interest, is now well underway. This landmark property located near the city's financial district will open in late 2000.
YEAR 2000
Work is on schedule to ensure that the Group is Y2K ready in all business critical activities by the year end. Both internal and external risks have been assessed by the individual hotels, and business continuity plans are being put in place. The Audit Committee has been monitoring progress and reporting to the Board.
Most of the remediation programmes involve routine capital expenditure on replacement systems and equipment. Other costs relating to resolving this issue are not significant and are expensed as incurred.
While the Group continues to make satisfactory progress and is making every effort to reduce the risks of the Y2K issue, there can be no absolute assurance that the Y2K programmes will be completely successful due to the inherent unpredictability and scope of the Y2K problem.
OUTLOOK
In conclusion, Simon Keswick said, "Market conditions in the Group's key Asian markets are expected to remain difficult during the remainder of the year at least. Average room rates will continue to be vulnerable to price competition. The costs associated with the refurbishment of the London property will also depress group profits.
"The Group continues to respond vigorously to the twin challenge of the current difficult market conditions in Asia and the long-term development of our global brand."