M & C Group performance was disappointing in the first half of 2014, ascribed to a range of factors including geopolitical events unsettling the hospitality sector – especially in Asia – and the rapid appreciation of the pound sterling.
Outlook
Whilst it is too early to be certain about trading results for the full year, management is determined to meet expectations. In reported currency, Group RevPAR is down 1.6% for the three weeks ended 21 July, 2014, with Australasia up 9.6%, US up 2.6% (down 4.9% excluding Novotel New York Times Square) and Europe up 5.0% (up 0.7% excluding The Chelsea Harbour Hotel). Asian destinations face continuing headwinds with Singapore down 17.1% and Rest of Asia down 12.2%. Excluding acquisitions, Group RevPAR is down by 5.8%.
Highlights forthe first half 2014:
FirstHalf2014 | First Half2013¹ |
Change |
||
RevPAR | £65.67 | £67.27 | (£1.60) | (2.4%) |
Revenue | £380.6m | £382.2m | (£1.6m) | (0.4%) |
Operating profit | £64.7m | £71.8m | (£7.1m) | (9.9%) |
Profit before tax | £58.4m | £68.6m | (£10.2m) | (14.9%) |
Basic earningsper share | 9.4p | 14.0p | (4.6p) | (32.9%) |
Dividend | 2.08p | 2.08p | – | – |
Highlights for the second quarter 2014:
SecondQuarter
2014 |
SecondQuarter2013¹ |
Change |
||
RevPAR | £72.88 | £74.29 | (£1.41) | (1.9%) |
Revenue | £205.3m | £206.3m | (£1.0m) | (0.5%) |
Operating profit | £42.5m | £47.5m | (£5.0m) | (10.5%) |
Profit before tax | £38.3m | £44.8m | (£6.5m) | (14.5%) |
Basic earningsper share | 7.4p | 10.2p | (2.8p) | (27.5%) |
- Revenue, profit and earnings per share decreased in the first half of 2014, compared to the same period last year, due to the strengthening pound sterling, challenging Asian markets – in particular Singapore – and higher costs.
- Group RevPAR fell by 2.4% mainly as a result of foreign currency impact and reduced RevPAR in Asia.
- In constant currency, Group RevPAR grew by 3.6%, with gains in all regions except for Singapore and Rest of Europe.
- In reported currency, US RevPAR was down by 0.3% compared to H1 2013. Excluding the refurbishment effect at Millennium Hotel Minneapolis, closure of Millennium Hotel St Louis and acquisition of Novotel New York Times Square, US RevPAR was down 5.6%.
- In reported currency, London region RevPAR is up by 1.9% compared to H1 2013. Excluding the acquisition of The Chelsea Harbour Hotel, RevPAR was down 0.6%.
- Post balance sheet event: successful initial public offering (“IPO”) by First Sponsor Group Limited (“FSGL”) and listing on the Main Board of the Singapore Exchange.
Financial Performance
For the six months ended 30 June 2014 revenue in reported currency fell slightly by 0.4% to £380.6m (H1 2013: £382.2m), while profit before tax decreased by 14.9%. The strength of reporting currency, pound sterling, continued to have a significant impact on results. On a constant currency basis, revenue increased by 6.0% to £380.6m (H1 2013: £359.1m) and profit before tax decreased by 8.6% to £58.4m (H1 2013: £63.9m). Lower profit reflected mainly higher hotel operating costs, higher central costs and a lower contribution from joint ventures and associates.
Hotel Operations
For the six month period ended 30 June 2014, Group RevPAR fell by 2.4% to £65.67 (H1 2013: £67.27), partly as a result of the strength of the pound sterling, which appreciated by about 8% against the US Dollar between 30 June 2013 and 30 June 2014. As detailed in the regional performance review, Group RevPAR increased by 3.6% on a constant currency basis, compared to the same period last year (H1 2013: £63.40). The improvement was driven by increases in both average room rate and occupancy with positive RevPAR performance in the US, London, Australasia and rest of Asia.
Asset Management
Acquisitions & Disposals
The Group completed two acquisitions during the first six months of 2014. The acquisitions of a hotel located at Chelsea Harbour, London for £65.0m and the Novotel New York Times Square for $273.6m (£161.0m) completed on 25 March 2014 and 12 June 2014 respectively. Subject to conditions being met, the acquisition of Boscolo Palace Roma in Italy is scheduled to complete around September 2014.
The Group’s property revenue of £22.2m during the first half of 2014 included New Zealand landbank sales and the sale of the last three Glyndebourne condominium units in Singapore.
Hotel Refurbishment
Since the current refurbishment programme started in 2010, the Group has spent £106m up to 30 June 2014. For the remainder of the year it is expecting a further £31m of refurbishment spending on projects that have already commenced or are approved, with a further £22m of spending on these projects in future years. This includes the ongoing refurbishment of Grand Hyatt Taipei.
Additional projects totalling £214m are also under consideration including projects at Millennium Hotel London Knightsbridge, and Millennium Broadway Hotel New York. In May 2014, the Group announced the closure for refurbishment of the 125-room Millennium Scottsdale Resort and Villas in Arizona from 22 June until 30 September 2014. All projects are subject to relevant consents and phasing to minimise impact on earnings.
In the first six months of 2014, £18m was spent, relating mainly to Grand Hyatt Taipei for renovating the east wing. Total refurbishment cost for this hotel is anticipated to be £62m and up to 30 June 2014, a total amount of £39m has been spent. Guestroom refurbishment is now complete. Further work on the outlets and public areas is scheduled to complete in 2015.