Key Financial Results
Profit before non-operating items increased by 39% to HK$688 million
Profit attributable to shareholders of HK$2.7 billion, including revaluation
Shareholders' funds increased by 21% to HK$14.9 billion (HK$10.51 per share)
as at 31 December 2005. This figure is stated after application of the
new accounting policies under which the 31 December 2004 figure was restated
from HK$17.4 billion to HK$12.3 billion
Net borrowings decreased by HK$2.0 billion to HK$2.3 billion, with the
net gearing level reducing to 13%
RevPAR for the group's hotels increased by 17%
Completed sale of The Kowloon Hotel
Purchased the land for development of The Peninsula Shanghai and received
preliminary planning approval
Closed The Peak Tower for complete revitalisation
Disposed of a parcel of land in Phuket
Completed a JPY 14.2 billion term loan facility for The Peninsula Tokyo
The Peninsula Manila became a subsidiary of the company
HSH's Underlying Profit Up 39% on Strong Business Fundamental
Hong Kong, March 16, 2006 – Announcing its audited results for the
year ended 31 December 2005, The Hongkong and Shanghai Hotels, Limited
(HSH) said that the underlying strong performance of its businesses during
the year was reflected in significantly improved profit before non-operating
items of HK$688 million, up 39% as compared to 2004.
Significant changes in accounting policies have impacted the presentation
of the group's accounts this year, although these changes have no material
effect on the group's EBITDA and operational cash flow, which are the key
measures on which management focusses in managing the group's business.
The first significant change to be aware of is that hotel properties
(other than shopping arcades and offices at hotels) and golf courses are
stated at cost less depreciation and any provision for impairment, rather
than at fair market value as previously stated. Secondly, whilst
investment properties continue to be carried at fair value, any revaluation
surpluses or deficits are now reflected in the group's profit and loss
account, leading to significant, non-operating volatility in the group's
earnings. Furthermore, there is now a requirement to make provision,
at the profits tax rate, for deferred taxation in respect of such revaluation
surpluses in the group's balance sheet. It is the directors' position
that the group's investment properties are held for the long-term and that
if any Hong Kong investment properties were sold, tax would not be payable
on the disposal as the gain would be capital in nature and such capital
gains are subject to a nil tax rate in Hong Kong. Finally, depreciation
must now be recognised against the group's hotel assets despite the policy
of the group to continually maintain and refurbish such assets.
This has now led to an additional depreciation charge for the year of HK$142
The total turnover for the company was HK$3.3 billion for the year
ended 31 December 2005, representing an increase of 5% as compared to 2004.
Earnings before interest, taxation, depreciation and amortisation (EBITDA)
were HK$1.1 billion, a rise of 10% over 2004. The increase was driven
primarily by the improvement in the contribution from the hotel division.
After adjusting for the results of The Kowloon Hotel which has been sold,
revenue and EBITDA would have risen by 16% and 20% respectively.
Profit attributable to shareholders was HK$2.7 billion in 2005, compared
to HK$2.8 billion in 2004. The restatement of 2004's figures follows
the adoption of new accounting standards effective from 1 January 2005.
Shareholders' funds stood at HK$14.9 billion, or HK$10.51 per share,
after incorporating the year-end revaluations on investment properties,
an increase of 21% as compared to 2004. It should be noted
that the above changes in accounting policies have resulted in the net
assets as at 31 December 2004 attributable to the company's shareholders
being restated to HK$12.3 billion (HK$8.80 per share) from the previously
published figure of HK$17.4 billion (HK$12.40 per share).
An interim dividend of 4 cents was paid during the year 2005 (2004:
3 cents). To balance the company's improved operating performance
with its future commitments to the Tokyo and Shanghai projects, the directors
are recommending to shareholders that the final dividend be set at 10 cents
per share (9 cents in 2004), representing a total dividend for 2005 of
14 cents per share. Shareholders will also be given the option to
receive their dividend in the form of scrip rather than cash.
Key Statistics for the Year Ended
Clement Kwok, HSH's chief executive officer, commented, "Our operating
results, together with several well-executed corporate transactions, most
notably the sale of The Kowloon Hotel, have placed the company in its strongest
financial position for some time, with a healthy level of operational earnings
and a prudent balance sheet."
Mr Kwok pointed out that all the Peninsula hotels are either the leader
or amongst the leaders in room rate and revenue per available room (RevPAR)
in their respective cities, enabling the group to capture a strong share
of the growth in revenue brought about by the favourable market conditions
in 2005. To retain this competitive position, the hotels are
focussed on delivering the highest quality and service standards as well
as enhancing the facilities offered and making best use of the available
space. Enhancement projects completed in 2005 included the final
four floors of guestrooms at The Peninsula Palace, the expansion of Shanghai
Terrace at The Peninsula Chicago, and the enlargement of the spa at The
Peninsula Beverly Hills. Currently under way are the creation of
a new spa at The Peninsula Bangkok, an extension of the spa in The Peninsula
Hong Kong, and the renovation of one guestroom wing as well as public areas
at The Peninsula Manila.
December 31, 2005
In Asia, The Peninsula Hong Kong enjoyed sustained demand with occupancy
of 79%, thus increasing RevPAR by 11%. The Peninsula Palace Beijing continues
to benefit from its recent full renovation and increased its RevPAR by
40%. The retail arcades in both hotels continue to be sought after by high-end
retail brands, and to meet demand from key tenants for additional space,
the layouts have been reconfigured where possible, including creating the
first duplex stores at The Peninsula Hong Kong.
Elsewhere, The Peninsula Manila achieved pleasing RevPAR growth of
17% in a market that continues to be uncertain. In Bangkok, the market
was affected in the early part of the year first by the tsunami and subsequently
by the unrest in the south of the country. Nevertheless, The Peninsula
Bangkok was able to grow its RevPAR by 5%.
In North America, the three Peninsula hotels continued to be recognised
as market leaders and enjoyed significant increases in average room rates.
The Peninsula New York increased its RevPAR by 16%, The Peninsula Beverly's
Hills by 11% and The Peninsula Chicago by 17%. From 1 April 2006, HSH will
resume direct management of Quail Lodge, which has struggled to establish
a clear market position following its 2003 renovation, although its RevPAR
increased by 13% in 2005.
The bulk of the company's non-hotel properties are situated in Hong
Kong, which has enjoyed a strong rebound in both the residential and office
lettings market in 2005 with a further influx of international companies
establishing or increasing their presence in the city. Following completion
of the latest phase of renovation of the unfurnished apartments at The
Repulse Bay, occupancy by year end increased to 86% (2004: 78%), although
there will be some lag in the full impact on revenue due to the timing
of lease renewals. Occupancy at St John's Building remained steady whilst
The Landmark has performed well.
Patronage of the Peak Tram dipped by 4% as renovation work commenced
on The Peak Tower, but this was offset by a slight increase in the average
price per ticket. The renovation of The Peak Tower has progressed steadily
towards completion in mid-2006 when it will re-open with a new array of
shops and restaurants as well as an observation deck at the top of the
Clement Kwok explained that "HSH's philosophy is based on the long-term
ownership and management of top quality hotels and other properties.
The company believes that by seeking prime locations and then committing
significant human and financial resources to creating exceptional hotels,
value will be created for its shareholders through both operating results
and long-term asset value appreciation, as has been shown by several of
the existing properties."
Of the major projects under development, both The Peninsula Tokyo and
The Peninsula Shanghai are situated in exceptional locations, the former
in the prestigious Marunouchi district, overlooking the Imperial Palace
gardens, and the latter, the only new-build with frontage on to the Bund.
In Tokyo, the hotel shell and core is under construction with topping out
expected in mid-2006. In Shanghai, completion of the land purchase
took place in August 2005, and agreement has been reached with the authorities
on the key planning parameters of the architectural scheme.
Looking forward, Mr Kwok said, "In recent years we have repeatedly
emphasised seeking ways to enhance the value of our existing assets through
new concepts and redevelopments. The many ongoing enhancement projects
at our hotels and properties and in particular the renovation of The Peak
Tower are examples of these initiatives.
"Whilst our development emphasis has been on management and delivery
of the Tokyo and Shanghai projects, we have also continued to seek other
opportunities for new hotel developments. However, we are selective
in our choice of projects and expect to commit to new ones on a measured
Incorporated in 1866 and listed on the Hong Kong stock exchange, The
Hongkong and Shanghai Hotels, Limited's principal business comprises the
ownership and management of prestigious hotel, commercial and residential
properties in key destinations in Asia and the USA; it is the owner and
operator of The Peninsula Hotels. The hotel portfolio comprises The
Peninsula Hong Kong, The Peninsula New York, The Peninsula Chicago, The
Peninsula Beverly Hills, The Peninsula Bangkok, The Peninsula Palace Beijing,
The Peninsula Manila and The Peninsula Tokyo (opening in 2007), and Quail
Lodge Resort and Golf Club, Carmel, California.