Annual Report 2011 - Mandarin Oriental Hotel Group

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20 Mandarin Oriental International Limited Financial Review Continued Subsidiaries continued In Europe, London benefited from strong market conditions and a significant increase in food and beverage revenues from two new restaurants, leading to a 28% increase in EBITDA, when compared to 2010. Mandarin Oriental, Paris opened in June 2011 with pre-opening expenses charged to profit and loss of US$13 million. In the first six months of trading the hotel achieved an average rate of close to €950, with occupancy restricted by the full inventory of 138 rooms only being available from late September onwards. In Munich, strong demand resulted in EBITDA increasing by 35% in 2011. In Geneva, a phased rooms renovation and a strong Swiss Franc impacted the hotel’s operating performance, although its contribution, when converted into US dollars, was similar to 2010. In The Americas, the contribution from the Washington D.C. hotel improved as a result of an increase in RevPAR. In 2011, the contribution from management activities was US$32.7 million, an increase of US$14.6 million compared to 2010. This increase principally relates to US$16 million of branding fees received from the sale of The Residences at Mandarin Oriental, London. Depreciation and amortization expenses were US$49.7 million for 2011, an increase of US$5.1 million from 2010, the majority of which is attributable to the new Paris hotel. Associates and joint ventures The Group’s share of results from associates and joint ventures was as follows: 2011 2010 US$m US$m EBITDA from associates and joint ventures Less depreciation and 32.7 26.9 amortization expenses (12.2 ) (11.1 ) Operating profit 20.5 15.8 Less net financing charges (6.3 ) (6.4 ) tax Share of results of associates (4.4 ) (5.1 ) and joint ventures 9.8 4.3 In total, the Group’s share of EBITDA from associates and joint ventures increased by US$5.8 million or 22% to US$32.7 million in 2011. In Singapore, the Group’s 50%-owned hotel benefited from strong market conditions, improving its EBITDA by 34% during the year. Although overall occupancy levels improved in Bangkok in 2011, the extensive floods in Thailand in the fourth quarter of the year impacted the hotel’s performance, resulting in a full year contribution in line with 2010. Kuala Lumpur’s EBITDA was largely unchanged from 2010, in a highly competitive market. In The Americas, the New York hotel maintained its competitive market position, achieving a modest increase in EBITDA contribution. In Miami, the hotel’s performance benefited from an increase in citywide demand and a 19% increase in RevPAR, leading to an improved EBITDA contribution. Depreciation and amortization expenses from associates and joint ventures were US$12.2 million, up from US$11.1 million in 2010. The Group’s share of net financing charges from associates and joint ventures was US$6.3 million, largely in line with 2010. The 2011 tax charge of US$4.4 million was US$0.7 million lower than last year, primarily due to the reversal of a tax asset in Bangkok which made the tax charge higher in 2010.
Non-trading items In 2011, there was a net non-trading gain of US$8.5 million. The principal item was a gain of US$10.1 million representing the market value of a long-term leasehold interest in part of the One Hyde Park complex adjacent to the London hotel. This leasehold interest was granted by the developer to the Group at no cost. This gain was partially offset by a US$1.6 million provision for asset impairment made in relation to a managed hotel. Net financing charges Net financing charges for the Group’s subsidiaries decreased to US$12.0 million in 2011 from US$13.1 million in 2010. This decrease is principally due to higher interest received on cash balances as deposit rates improved in 2011. Interest cover EBITDA is used as an indicator of the Group’s ability to service debt and finance its future capital expenditure. Interest cover in 2011 calculated as EBITDA (including the Group’s share of EBITDA from associates and joint ventures) over net financing charges (including the Group’s share of net financing charges from associates and joint ventures), was 8.9 times compared with 7.0 times in 2010. Tax The tax charge for 2011 was US$19.0 million compared to US$12.0 million in 2010. The higher tax charge is largely attributable to the Group’s improved operating performance. The underlying effective tax rate for the year was 23%, broadly in line with the 2010 rate of 24%. Annual Report 2011 21 Cash flow The Group’s consolidated cash flows are summarized as follows: 2011 2010 US$m US$m Operating activities Investing activities: • Capital expenditure on existing 146 114 properties (38 ) (44 ) • Investment in Paris (25 ) (28 ) • Purchase of intangible assets (3 ) (3 ) • Investments in and loans to associates • Repayment/(funding) of (1 ) (3 ) hotel mezzanine loans 3 (3 ) • Other (1 ) – Financing activities: • Issue of shares 1 7 • Drawdown of borrowings 10 25 • Repayment of borrowings (7 ) (125 ) • Dividends paid (50 ) (69 ) • Other 1 1 Net increase/(decrease) in cash and cash equivalents 36 (128 ) Cash and cash equivalents at 1st January 433 561 Cash and cash equivalents at 31st December 469 433 The Group’s cash flows from operating activities were US$146 million in 2011, an increase of US$32 million from 2010, primarily due to the improved operating performance of the Group’s hotels and an increase in branding fees received. Under investing activities, capital expenditure on existing properties was US$38 million in 2011, compared to US$44 million in 2010. During the year, the London hotel spent approximately US$10 million principally completing a new restaurant and partially fitting out the space granted to the hotel by the developer of The Residences at Mandarin Oriental, adjacent to the hotel. The balance of expenditure incurred related to ongoing asset improvements across the portfolio, including approximately US$6 million in Geneva on a phased rooms renovation.
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