Badly bruised, but fighting fit, the Mandarin Oriental remains determined to develop into one of the world�s top three luxury hotel groups.

�While it is too early to predict a return to a less challenging business environment, Mandarin Oriental has successfully confronted difficult times before - and has emerged a stronger organisation,� says CEO Edouard Ettedgui. 

�The group's award-winning hotels and strong brand place us in an excellent position to benefit from a global recovery when it occurs. With the continued support of all our stakeholders, we have the means to achieve our vision.

�Despite the current operational challenges that have impacted profitability, our vision on what constitutes success for the group remains unchanged.

"Our Mandarin Oriental brand will be recognised as one of the top-three global luxury hotel groups. We will operate at least 10,000 rooms in major business centers and key leisure destinations worldwide. And, we will consistently achieve shareholders' profit expectations."

Despite the challenges of the past year, the group has pushed on with its development plans. Projects are underway in Tokyo and Washington DC, and construction of its new hotel in New York is ongoing. 

In London, its fully renovated flagship hotel enjoyed its first full year of operation, and achieved an increase of some 20% in average room rate (ARR) compared with the period prior to closure. 

In Bangkok, the Oriental celebrated its 125th anniversary and completed the final phase of its two-year room renovation programme.

�Over the past three years, we have made significant progress towards achieving our vision,� says Ettedgui. 

�We are well on the way to being recognised as one of the top three global luxury hotel groups. We have a well-known and well-respected brand, steeped in the values of the Orient, and built on a strong company culture of delighting our guests through excellent service.

�Each of our distinctive, perfectly located hotels embodies its own unique design and culture with a strong sense of place. We have built a reputation for creating trend-setting restaurants and bars, and we have introduced the highly personalised Mandarin Oriental spas into many of our hotels.

�We have always recognised the importance of people training and development, and have policies in place to attract, retain and motivate our colleagues around the world.�
The group currently operates 6,600 rooms worldwide in 18 properties, up from 12 in 1998, with the three hotels under development adding a further 800 rooms. 
 

�Our renovated flagship in London is now one of the city's most prestigious hotels, and we have secured a long-term foothold in New York and a future presence in Tokyo. The strategic importance of these three cities for the luxury hotel industry cannot be over-estimated. �The improved geographic spread of properties leaves us much better placed to tackle the inevitable industry cycles. Half of the combined total revenues of our hotels under

Mandarin Oriental Hyde Park London

�We are now also able to leverage efficiently our corporate and property resources worldwide.�

The group has achieved a better balance between owned properties and managed hotels, which is demonstrated by a 30% increase in contributions from management contracts over the past three years. 

We has also increased its proportion of leisure business to more than 35% of its total room-night inventory following the addition of properties in London, Munich, Geneva and Miami, as well as resorts in Bermuda and Florida.

�The hotel sector continues to be an attractive industry in which to build and leverage a luxury brand, despite its high sensitivity to economic swings and levels of room inventory,� says Ettedgui. 

�Demographic trends, coupled with an expected increase in high-end corporate business due to the continued globalisation of markets, mean that it will remain a long-term growth sector.�

The group�s corporate structure has been enhanced to match its pace of development, and its expertise has been strengthened in areas such as design and project management, information technology and marketing research. 

Although it has maintained or substantially increased its regional sales forces, some areas have had to be scaled back in response to the economic downturn. It has also increased it network of PR agencies worldwide, and is upgrading its website as an effective sales channel.

Its brand communications are being sharpened to address a wider audience, and advertising campaigns are being launched in new markets, such as Germany and France. 

�In all areas of corporate competencies, from technology to operations and people development, our resources are being integrated with the needs of our hotels,� says Ettedgui.

The group's financial well-being remains a fundamental objective, particularly if the current challenging environment continues. 

�In an industry that must bear a high level of fixed costs in order to deliver a luxury experience, the recent significant drop in revenues has had a damaging effect on profitability,� says Ettedgui. 

�As a direct consequence, we have had to take the difficult decision to carefully reduce headcount in many of our hotels and our corporate offices. In addition, a number of other vigorous cost-containment measures are also being implemented.�
The group also entered into a US$385 million syndicated facility in August 2001 that provides further capacity for operational requirements and future development opportunities.

�Our balance sheet has enabled us to enter this downturn on a sound footing, and we will continue to leverage that strength,� says Ettedgui. "Despite the current operational challenges that have impacted profitability, our vision on what constitutes success for the group remains unchanged. Our Mandarin Oriental brand will be recognised as one of the top-three global luxury hotel groups."

Grabbing opportunities

THE group, which aims to increase the number of rooms under operation to 10,000, made progress with the development of a number of new hotel projects in 2001.
It is also reviewing several potential projects in key destinations in Asia, Europe and the Americas, most of which are management contracts, but some with minority equity participation. 

�By building our reputation as an operator and asset manager, Mandarin Oriental will attract more opportunities to be awarded contracts,� says Ettedgui.

Tokyo
The 171-room luxury hotel, due to open in late 2006, is a significant step in a key international market. It is part of a new mixed-use development, ideally located in central Tokyo near the financial districts and the shopping district in Ginza. 
The group will enter a long-term lease agreement, and has committed to invest approximately US$37 million, principally in 2004 and 2005, into furniture, fixtures, equipment (FF&E) and pre-opening costs.

Washington DC
The group announced last month the development of a 400-room hotel, due for completion in spring 2004. It will take an 80% interest in the US$144 million project, with an equity commitment of US$19 million, of which US$5 million had already been incurred by the end of 2001. With an undersupply of luxury properties in the market, and a new convention centre due for completion in 2003, the property will be positioned as the city's most prominent hotel.

New York
Construction of the prestigious AOL Time Warner Center is well underway and the hotel, which forms part of the development, is on track to open in late 2003. The remaining equity of approximately US$45 million is expected to be funded during 2002.