CHIEF EXECUTIVE’S REVIEW
The past 12 months have, without a doubt, been an exciting period in
the development of the Group. For the last three years, we have provided
our shareholders with good profit growth from enhanced hotel products,
demonstrating the benefits to be gained as a result of sound capital investment.
In 1999 we moved from being predominantly a United Kingdom based group
to becoming a major international player.
Over the next few years Millennium Copthorne Hotels will achieve significant
additional earnings from the acquisitions made during 1999. This will come
primarily from the continuing economic recovery in Asia and Australasia
together with the repositioning, refurbishing and introduction of our management
style and control into the under performing assets acquired in the USA
Regal Group. To this can be added the benefit to be gained from enhanced
brand recognition and global sales and marketing activities.
It is an important point to note, however, that significant growth will
not come overnight but be gained over a period of months and years. Providing
comparative statistics and financial information that remain meaningful
is difficult to achieve for a Group that has so fundamentally changed at
different times during 1999. The information referred to below is, in the
main, from continuing operations to which are added separately, the Asian
and Australasian statistics from assets which were in our ownership for
a little over half the financial year and, the matter of a few weeks in
respect of the Seoul, Kuala Lumpur and Regal properties.
The results of the Group from continuing operations reflect the fact
that, as had been well reported, there was some lessening in demand throughout
the United Kingdom for a large part of the financial year. Consistent
growth only returned in the last quarter. New York remained strong
throughout the year and, on the Continent, steady growth was recorded,
particularly in France.
The nascent upturn in the Asian economies during 1999 is expected to
have a delayed impact on hotel revenues, as lead time is needed for recovery
to be felt. However, the Group’s efforts at improving customer mix showed
signs of yield recovery as the year progressed. Taiwan recorded strong
growth over the previous year until the country was rocked last September
by a massive earthquake. Business levels fell dramatically for a time,
albeit they have now substantially recovered. In Australasia, Occupancy
improved upon the corresponding period in 1998 and was coupled with a small
increase in average room rate. Bedroom Occupancy from continuing
operations for the year was 77.2% (1998: 79.4%), 2.2 percentage points
down on last year the shortfall mainly due to the United Kingdom properties.
Importantly, average room rate grew by 5% to 94.30 pounds resulting in
a growth in yield per available room of over 2%. The Gross Operating Profit
from continuing operations, which excludes a hotel’s fixed expenses over
which individual hotel management has limited control (being rent, property
taxes, insurance, depreciation, amortisation, operating lease rentals and
external management fees) increased by over 3m pounds on last year, producing
a Gross Operating Profit margin of 46.1% (1998: 47.7%), down 1.6 percentage
points on 1998. The lower profit margin is, in part, due to the change
in revenue mix, particularly in London, where the food and beverage areas,
which convert at a lower profit margin, improved during the year whilst
room revenue in the region was down a little overall.
Occupancy for the total Group, including acquisitions, was 70.6%, at
an average room rate of 74.08 pounds, producing a yield per available room
of 52.30 pounds.
The lessening demand in London was highlighted in our interim announcement
and this position continued until mid September. The following quarter
recorded good growth on the corresponding period last year, followed by
a five week period over the Millennium when business in many parts of the
world took a holiday. Despite the softer market in the region, we
took the conscious decision that we did not wish to get into ‘rate cutting’.
Our view on the London and Regional United Kingdom markets was that this
was going to be a short term downswing and, as business returned, it would
be easier to recover lost occupancy than to raise rates. The early
indications in 2000 confirm this policy as being correct. Our Occupancy,
therefore, dropped a little in the short term achieving 81.7% (1998: 84.7%)
for the year, but our average room rate rose by 2% to 88.34 pounds (1998:
86.99 pounds), producing a yield per available room only 2% down for the
year at 72.17 pounds (1998: 73.68 pounds). The resulting small shortfall
in room revenue was recovered by gains in the food and beverage area, the
change in business mix converting at different profit margins accounting
for some of the reduction in the Gross Operating Profit margin to 53.5%
During the year some disruption was experienced at the Millennium Knightsbridge
(formerly the Millennium Chelsea), where the lobby was renovated during
the first quarter making access to the hotel difficult. At the Millennium
Britannia, the construction of the ballroom and bedroom extension was completed
in late August. The ballroom, which can accommodate 800 guests theatre
style and 400 banquet style, has been very well received and we will benefit
even more in 2000. The noise and disruption during construction undoubtedly
affected business in both mix and volume. In the Summer and on into the
Autumn we refurbished another 122 bedrooms in this property leaving only
82 which were completed during January and February 2000. Bedroom refurbishments
continued at both the Millennium Gloucester (168) and Copthorne Tara (159)
in the early part of 1999. Both properties are currently undergoing further
The economic position and the action we took in London was mirrored
in a number of the provincial properties. In a few locations additions
to competitor hotel stock, particularly at Slough, Manchester and Cardiff
have resulted in the supply temporarily outstripping demand. The
oil industry sector experienced a slowdown which particularly affected
Aberdeen for a large part of the year, although it is now showing signs
of recovery. Elsewhere, our two properties at Gatwick, for example,
recorded growth over the year. Like London, the position improved in the
final quarter and the early indications for 2000 are positive.
Overall Occupancy for the Regional UK properties was still a creditable
73.3% (1998: 76.5%) and, whilst a little over 3 percentage points down
on last year, the deficit reduced marginally in the second half of the
year. At the same time, we still protected our average room rate, up a
little to 66.39 pounds (1998: 66.00 pounds), the resultant yield per available
room of 48.66 pounds (1998: 50.49 pounds) being less than 4% down on 1998.
In November we commenced a major restructuring and renovation programme
at the Copthorne Glasgow. The programme encompasses all bedrooms and public
areas and will be completed in May this year. The hotel has continued to
operate whilst these major works are being carried out but it is, naturally,
having an effect on the hotel and region’s performance. Once completed,
the hotel will be rebranded a Millennium. In the Autumn of 1999 we completed
the construction of an extension to the Conference Centre facility at the
Copthorne Merry Hill and the enlarged facility has been well received.
The disruption to the properties contributed towards the lower Gross Operating
Profit margin at 40.4% (1998: 43.3%), down 2.9 percentage points.
The results from our Continental Europe region reflect the effect from
the still maturing Millennium Opera (formerly the Millennium Commodore)
in the heart of the commercial district of Paris. Following its reopening
in October 1998 the hotel, like any new property, has taken time to gain
recognition in the local marketplace and it has steadily improved over
the year. The strength of the market in France is demonstrated by
the Copthorne Paris Charles de Gaulle which, yet again, has achieved its
best ever year by a significant margin. In Germany, the properties
continue to record little or no growth; however, Hannover will benefit
during this year from Expo 2000 which will take place less than one mile
from the hotel.
improving Millennium Opera Paris hotel, the Gross Operating Profit margin
was 2.1 percentage points down at 27.2% (1998: 29.3%), reducing somewhat
the deficit recorded during the first half year.
|Occupancy for the region was 63.7% (1998: 64.8%), down 1.1 percentage
points due to the effect of the reopening of the Millennium Opera Paris.
In contrast, average room rate for the year was 72.35 pounds (1998: 57.60
pounds), up nearly 26%, resulting in an increase of over 23% in yield per
available room. Principally as a result of the still
MILLENNIUM OPERA PARIS
The Regal Hotels acquisition was not completed until 17 December 1999
and, with an effective ownership of only two weeks, the financial statistics
exclude the effect of this acquisition.
Demand in our New York properties remained very strong with Occupancy,
average room rate and Gross Operating Profit margin all increasing from
an already high base achieved in 1998. Occupancy increased by 1.5 percentage
points to 81.5% (1998: 80.0%) even after taking into account the extra
40,000 room nights available at the Millennium Broadway, being the inclusion
of the 125 bedroom Millennium Premier extension which was fully opened
in January 1999.
The average room rate for the region grew nearly 6% to 145.71 pounds
(1998: 137.85 pounds) producing an 8% increase in yield per available room.
In US dollars the average room rate grew by 3% to US $235.67 and yield
per available room by 5% to US $192.07. The Gross Operating Profit
margin improved 1.3 percentage points to 46.2% (1998: 44.9%). In
the coming year we are going to convert 14,000 sq. ft. storage space at
the Millennium Broadway into additional conference and meeting facilities,
further enhancing this property’s reputation as the premier hotel conference
venue in New York. In The Plaza, following the completion of the
bedroom refurbishment, the attention has been on improving the average
room rate and the property finished the year with an average of US $335,
up over US $20 on 1998, achieving well over US $400 in the closing months.
During 1999 the in-house leisure facility opened and a refurbishment of
the suites was commenced, for completion in 2000.
A substantial amount of time is going to be spent on integrating and
refurbishing, in particular, the first class hotels that form part of the
acquired properties. The works necessary are expected to take at least
two years, possibly three, to complete. As the initial works are completed
during the year and we introduce profit conversion practices, we expect
to see revenue and profit enhancement.
Ownership of a substantial part of the hotel interests previously owned
by CDL Hotels International Limited throughout Asia became effective from
9 June 1999. The last two parts of the transaction, being shareholdings
in companies holding assets in Malaysia and Hong Kong, were completed in
December 1999 and January 2000 respectively.
Our properties, located in six countries in Asia, experienced mixed
fortunes during the period that they were under our ownership. Economically
there is substantial evidence to show that, generally, all the countries
are steadily climbing out of recession with the exception of Indonesia
where we still await full political stability. Like all recoveries, there
is a lag before being able to see the recovery in hotel performances. The
largest revenue and profit producer amongst the acquired assets, the Grand
Hyatt Taipei, was performing very well with significant growth on the previous
year when the area was hit by a massive earthquake in early September 1999.
Our hotel did receive some damage and resultant loss of revenue, but the
business market generally for the area was more materially hit and this
affected rooms and food and beverage business levels. It is now showing
signs of substantial recovery. The Seoul Hilton was acquired by the Group
at the end of November and the performance statistics have been consolidated
into the region for the few weeks until 31 December, but have little impact
on the numbers for that short period. In Singapore we have taken
advantage of the market lull and tax incentives to undertake major refurbishment
programmes at the Orchard and Copthorne Harbour View hotels. These commenced
in 1999 for completion in stages during 2000. In total 746 bedrooms representing
40% of the Group’s inventory in Singapore will have been refurbished. The
hotels are expected to improve room rates and command a higher yield as
the refurbishments are completed.
Overall Occupancy for the region was 64.9%, marginally down on 1998,
with the average room rate steady at 48.30 pounds. The outlook looks stronger
as the whole region continues to recover from recession and the service
industry benefits from the business confidence in the area. In terms of
profitability and profit conversion, under our management it is beginning
to yield positive results, producing a Gross Operating Profit margin of
37.1%, for the period, a good improvement on last year.
Our ownership of the mainly hotel interests previously owned by CDL
Hotels International Limited, became effective from 9 June 1999.
The performance of the hotels in New Zealand and one property in Sydney,
Australia, have, as expected, recorded some growth over 1998 as the economies
recover and there is every sign that the growth will continue in 2000,
aided by the Olympic Games and Americas Cup yacht racing. Occupancy
for the region was 62.3% with an average room rate of 31.63 pounds, both
a little up on the corresponding period last year. In monetary terms
the Gross Operating Profit improved for the period and the profit margin
was 32.9%. The cost base is still under review and the profit margin
is projected to improve in 2000.
The Group has, by the timing of the acquisitions in Asia and Australasia,
positioned itself to take advantage of the continuing economic recovery
in the region. By acquiring the Regal Group in the United States
we have now given ourselves market presence in a number of major international
and feeder cities. Focused capital expenditure in the Regal Group,
coupled with a more directed approach to cost control and profit conversion,
will bring significant improvements to the results of these under performing
assets. We recognise that some of the acquired assets are not core
to our business and we will dispose of all or some of these properties.
Within continuing operations, the United Kingdom has recovered from the
softer market conditions experienced during 1999 and we will benefit from
a full year of enhanced facilities at the Millennium Britannia; and the
restructured Millennium Glasgow will provide added benefit from early Summer.
On the Continent there is continued growth from the Millennium Opera and
the New York hotels are showing no sign of any slowing in their growth.
To assist the Group’s growth objectives in Asia, a management company
has been formed, Millennium Copthorne International Limited, which will
be granted business headquarter status in Singapore.
With the enlarged Group now operating in 13 countries, we continue to
invest in information and other technologies to enhance our operations.
These include the benefit from the dedicated central reservations system
called RezUlt which is tailored to our needs as a global operator. We are
investing in up to date yield management techniques across the Group and
we are in the process of launching new loyalty programmes. In April we
will complete an upgrade to our website which will encompass access to
detailed information about our properties and an on line booking facility.
The fact that we are now becoming a genuinely global player means that
we are attracting greater interest from high calibre recruits.
As a result our management will grow in ability and depth of experience
at both local and international levels. Finally, I can report that
this year has begun strongly and I am confident that the Group has all
the ingredients to achieve further significant growth.
John Wilson, Chief Executive Officer
14 March 2000