3rd Nov 2005 07:01
Millennium & Copthorne Hotels PLC03 November 2005 3 November 2005 MILLENNIUM & COPTHORNE HOTELS PLC TRADING UPDATE AND RESULTS FOR THE THIRD QUARTER ENDED 30 SEPTEMBER 2005 Millennium & Copthorne Hotels plc today presents a trading update and itsresults for the third quarter ended 30 September 2005. The Group owns, assetmanages and/or operates 91 hotels located in the Americas, Europe, TheMiddle-East, Asia and New Zealand. The results presented today are under International Financial ReportingStandards ('IFRS') and the 2004 comparatives have been restated. Group results for third quarter(1), (2) • Group revenue up 8% to £146.6m (2004 restated: £136.3m). On a like for like basis, it increased by 9% (2004 restated : £134.9m)• Group operating profit before other operating income up 8% to £24.1m (2004 restated : £22.3m). On a like for like basis, it grew by 12% (2004 restated : £21.5m)• Profit before tax excluding other operating income up 27% to £16.7m (2004 restated : £13.2m )• Other operating income of £3.3m from the sale of the Bayswater tower in Sydney, Australia• Profit before tax up 52% at £20.0m (2004 restated : £13.2m) (1) Like for like revenue and operating profit before other operating income andexpenses exclude revenue of £1.4m and operating profit of £0.8m from rentalincome from Birkenhead Shopping Centre and Marina which were disposed of inNovember 2004 (2) Comparatives in reported currency Operational highlights(3) • Group RevPAR grew by 4.6% in the third quarter• Strongest performance was in New York with RevPAR up by 24.1%; mixed performance from Regional US• Regional UK grew by 7.2%; London RevPAR performance down 4.8% as a consequence of the July incidents• Continued growth in Asia with RevPAR up by 7.5%• Excluding London, Group RevPAR grew by 6.6%• Following our asset review earlier this year, a strategic decision has been taken to redevelop in 2006 the Copthorne Orchid Hotel, Singapore into residential condominiums for sale and Four Points in Sunnyvale, US into residential condominiums for sale and a 250-room hotel• Post quarter end - completion of the disposal of the Kingsgate shopping centre in Sydney for net consideration of £8.5m (3) Comparatives in constant currency Commenting today, Mr Kwek Leng Beng, Chairman, said: "In the third quarter, the US, New York in particular, and Asia continued toachieve strong growth, benefiting from an improved trading environment. Anotherwise solid UK performance was tempered by weakness in London following theincidents in July. Looking forward, we continue to be encouraged by the on-going performance of ourNew York and Asian properties; and London has seen a good pick up in corporatesales since the end of September. Our management team continues to focus onmaking further operational improvements to drive the performance of our hotels.With our Group's geographically diversified portfolio and focus on prudent costmanagement, we are well positioned for the final quarter. However, givenuncertainty in the global economic and travel environment, the outlook forgrowth in 2006 is less clear. We are also pleased to announce the redevelopment of two hotels, Four PointsSunnyvale and the Copthorne Orchid Singapore, for alternative use in 2006. Whencompleted, Sunnyvale will have some 240 residential condominiums for sale and a250-room hotel. The Orchid will be redeveloped into residential condominiums forsale. This reflects a continuation of our strategy of maximising value from ourportfolio through both improved operational performance and selective assetredeployment or disposal where appropriate. We continue to make good progress with our pipeline of management contracts andexpect to be in a position to make further announcements on this front at theyear end." Enquiries: Tony Potter, Group Chief Executive 020 7404 5959 (3 November)Robin Lee 020 7404 5959 (3 November)Millennium & Copthorne Hotels plc Nick Claydon/Kate Miller/Ruban Yogarajah 020 7404 5959Brunswick Group LLP An analyst conference call will be held on that morning at 0830am UK time. Dial in number: +44 (0) 1452 541 076Reference: Millennium & Copthorne Hotels third quarter resultsChairperson: Mr Tony Potter MILLENNIUM & COPTHORNE HOTELS PLC RESULTS FOR THE THIRD QUARTER ENDED 30SEPTEMBER 2005 OVERVIEW(4) +------------------+----------+-----------+----------+----------+-----------+-----------+| | Third| | | Nine| | || | quarter| | | months| | |+------------------+----------+-----------+----------+----------+-----------+-----------+| | 2005| 2004| % change| 2005| 2004| % change|| | | (restated)| | | (restated)| |+------------------+----------+-----------+----------+----------+-----------+-----------+| | £m| £m| | £m| £m| |+------------------+----------+-----------+----------+----------+-----------+-----------+|Revenue | 146.6| 136.3| 8| 427.6| 399.9| 7|+------------------+----------+-----------+----------+----------+-----------+-----------+|Group operating | 24.1| 22.3| 8| 64.5| 56.6| 14||profit before | | | | | | ||other operating | | | | | | ||income | | | | | | |+------------------+----------+-----------+----------+----------+-----------+-----------+|Profit before tax | 16.7| 13.2| 27| 43.0| 30.3| 42||excluding other | | | | | | ||operating income | | | | | | |+------------------+----------+-----------+----------+----------+-----------+-----------+|Profit before tax | 20.0| 13.2| 52| 59.1| 30.8| 92|+------------------+----------+-----------+----------+----------+-----------+-----------+ (4) Comparatives in reported currency Our management team continues to focus on making further operationalimprovements to drive the performance of our hotels. In the third quarter, theUS, in particular New York, and Asia continued to achieve good growth,benefiting from an improving trading environment. An otherwise solid UKperformance was tempered by weakness in London following the incidents in July. For the three months to 30 September 2005, Group revenue grew by 8% to £146.6m(2004: £136.3m). Group operating profit before other operating income grew by 8%to £24.1m (2004: £22.3m) and the profit before tax grew by 52% to £20.0m (2004:£13.2m). For the nine months to 30 September, Group revenue grew by 7% to £427.6m (2004:£399.9m). Group operating profit before other operating income was £64.5m, up14% (2004: £56.6m) and profit before tax was £59.1m, up 92% (2004: £30.8m). SUMMARY OF PERFORMANCE IN THIRD QUARTER Operational(5) The third quarter saw Group RevPAR growth of 4.6% over the prior year which wasprimarily driven by rate growth of 4.4%. Occupancy saw limited growth to 75.5%compared to 75.4% in the equivalent period in 2004. Third quarter RevPAR wasimpacted by a weak London market in July and August which saw a fall in RevPARof 4.8%. Stripping out the London portfolio, growth in Group RevPAR was up 6.6%. Our three New York hotels have continued to benefit from our successfulrate-driven strategy, with the highest recording a RevPAR growth of 30.0%.Regional US's RevPAR decrease of 0.5% has masked strong performances in a numberof our key locations including Los Angeles, Chicago and Minneapolis. Howeverthis was offset by weakness in some of our other properties, such as Cincinnatiwhere our hotel continues to be impacted by the closure of the convention centrewhich is due to reopen next year. The decline in RevPAR in London of 4.8% in the third quarter was a result ofpick-up in room sales at a slower than expected pace in light of pricecompression following the incidents of July 7 and July 21. However, our RegionalUK portfolio continued to perform well with 7.2% RevPAR growth. In France andGermany, RevPAR growth decreased by 4.5% mainly due to lower volumes in Germany. Asia continued to show good growth with RevPAR up 7.5%, primarily driven by anincrease in ARR of 5.7% with occupancy growth of 1.7%. New Zealand saw healthy ARR growth of 7.3% but this was offset by a fall involume of 6.3% resulting in RevPAR growth of 0.5%. This was partly driven by theMillennium Hotel Queenstown which was unable to replace last year's tourbusiness. Moving forward, our management team in New Zealand has successfullytargeted specific opportunities to address this gap in our inventory. (5) Comparatives in constant currency Portfolio We continue to maximise value from our portfolio through selective assetredeployment or disposal. In the quarter, we completed the sale of the Bayswater tower of our former hotelin Sydney at a price of A$20 million. The Group's profit on disposal was £3.3m. Subsequent to the quarter end, the Group completed the disposal of the KingsgateShopping Centre in Sydney for a net consideration of A$19.9 million (£8.5m). We are also pleased to announce the redevelopment of two hotels, Four PointsSunnyvale and the Copthorne Orchid Singapore, for alternative use in 2006. Whencompleted, Sunnyvale will have some 240 residential condominiums for sale and a250-room hotel which we are contemplating rebranding into a Millennium hotel.The Orchid will be redeveloped into residential condominiums for sale. Weexpect work on both projects to start in 2006. We continue to make good progress with our pipeline of management contracts andexpect to be in a position to make further announcements on this front at theyear end. PROSPECTS Group RevPAR for the 4 weeks to 28 October was up 3.4%. The portfolio iscurrently in line with expectations with solid growth in the US and Asia. Withour Group's geographically diversified portfolio and focus on prudent costmanagement, we are well positioned for the final quarter. However, givenuncertainty in the global economic and travel environment, the outlook forgrowth in 2006 is less clear. Kwek Leng BengChairman3 November 2005 Consolidated income statementFor the nine months ended 30 September 2005 (unaudited) Note 9 months 9 months Year ended ended ended 31 December 30 September 30 September 2004 2005 2004 £m £m £m Unaudited Unaudited Unaudited Revenue 427.6 399.9 551.0 Cost of sales (189.7) (179.2) (246.2) ---------- ---------- ----------Gross profit 237.9 220.7 304.8 Administrative expenses (173.4) (164.1) (219.6) ---------- ---------- ----------Group operating profit before other 64.5 56.6 85.2operating income and expenses Other operating income 2(a) 16.1 0.5 55.0Other operating expenses 2(b) - - (15.2) ---------- ---------- ----------Group operating profit 80.6 57.1 125.0 Share of profit of joint venturesand associates ------------------------ ------ ---------- ---------- ----------- operating profit 5.3 5.3 7.8- interest (0.8) (2.8) (3.2)- taxation (0.9) (0.5) (0.8)- minority interest (1.4) (1.3) (2.1)------------------------ ------ ---------- ---------- ---------- 2.2 0.7 1.7 Finance expenses (30.1) (29.5) (41.5)Finance income 6.4 2.5 5.8 ---------- ---------- ----------Profit before tax 59.1 30.8 91.0 Income tax expense 4 (17.6) (6.0) (31.4) ---------- ---------- ----------Profit for the period 41.5 24.8 59.6 ---------- ---------- ---------- Attributable to:Equity holders of the parent 35.8 18.2 50.9Minority interest 5.7 6.6 8.7 ---------- ---------- ---------- 41.5 24.8 59.6 ---------- ---------- ---------- Basic earnings per share (pence) 5 12.5 6.4 17.9 ---------- ---------- ----------Diluted earnings per share (pence) 5 12.4 6.4 17.8 ---------- ---------- ---------- Consolidated statement of recognised income and expenseFor the nine months ended 30 September 2005 (unaudited) Note 9 months 9 months Year ended ended ended 31 December 30 September 30 September 2004 2005 2004 £m £m £m Unaudited Unaudited Unaudited Foreign exchange translation 58.0 (16.8) (45.6)differencesCash flow hedges: amounts recycled 4.0 - -to income statementActuarial gains and losses arising (2.3) (2.5) (3.3)in respect of defined benefitpension schemesRevaluation of property, plant andequipment:- Group - - 12.7- Joint ventures - - 17.7Taxation charge arising:- On revaluation of hotel assets - - (1.1)- On defined benefit pension 0.6 0.7 1.0schemes ---------- ---------- ----------Income and expense for the period 60.3 (18.6) (18.6)recognised directly in equity Profit for the period 41.5 24.8 59.6 ---------- ---------- ----------Total recognised income and expense 6 101.8 6.2 41.0for the period First time adoption of IAS 39 6+7(e) (5.4) - - ---------- ---------- ----------Total recognised income and expense 96.4 6.2 41.0 ---------- ---------- ---------- Attributable to:Equity holders of the parent 83.3 4.9 29.5Minority interest 13.1 1.3 11.5 ---------- ---------- ---------- 96.4 6.2 41.0 ---------- ---------- ---------- Consolidated balance sheetAs at 30 September 2005 (unaudited) Note 30 September 30 September 31 December 2005 2004 2004 £m £m £m Unaudited Unaudited UnauditedAssetsProperty, plant and equipment 1,871.7 1,880.5 1,821.9Lease premium prepayment 89.8 89.8 89.2Investment properties 46.3 86.1 43.7Investments in joint ventures and 46.5 44.8 40.7associatesLoans due from joint ventures and 24.5 31.9 22.3associatesOther non-current assets 2.8 2.2 2.8 ---------- ---------- ----------Total non-current assets 2,081.6 2,135.3 2,020.6 ---------- ---------- ---------- Assets held for sale 3 9.2 - 14.5Inventories 4.1 3.7 3.9Development properties 81.2 18.3 32.3Trade and other receivables 65.6 63.1 51.1Cash and cash equivalents 90.4 48.6 90.7Other current financial assets 4.3 3.5 4.1 ---------- ---------- ----------Total current assets 254.8 137.2 196.6 ---------- ---------- ----------Total assets 2,336.4 2,272.5 2,217.2 ---------- ---------- ---------- LiabilitiesInterest-bearing loans, bonds and 515.3 591.7 248.0borrowingsEmployee benefits 17.0 13.1 13.3Other non-current liabilities 6.0 6.9 6.7Provisions 2.1 2.5 2.4Deferred tax liabilities 237.6 193.5 216.5 ---------- ---------- ----------Total non-current liabilities 778.0 807.7 486.9 ---------- ---------- ---------- Interest-bearing loans, bonds and 82.2 102.6 325.7borrowingsTrade and other payables 111.1 102.0 99.0Income taxes payable 21.3 15.7 22.6 ---------- ---------- ----------Total current liabilities 214.6 220.3 447.3 ---------- ---------- ----------Total liabilities 992.6 1,028.0 934.2 ---------- ---------- ----------Net assets 1,343.8 1,244.5 1,283.0 ---------- ---------- ---------- EquityIssued capital 86.1 85.5 85.9Share premium 847.7 846.5 846.1Revaluation reserve 246.0 247.3 246.0Retained earnings 30.6 (47.5) (17.4) ---------- ---------- ----------Total equity attributable to equity 6 1,210.4 1,131.8 1,160.6holders of the parentMinority interest 133.4 112.7 122.4 ---------- ---------- ----------Total equity 6 1,343.8 1,244.5 1,283.0 ---------- ---------- ---------- Consolidated statement of cash flowsFor the nine months ended 30 September 2005 (unaudited) 9 months 9 months Year ended ended 30 ended 30 31 December September September 2004 2005 2004 £m £m £m Unaudited Unaudited Unaudited Cash flows from operating activitiesProfit for the period 41.5 24.8 59.6Adjustments for:Depreciation and amortisation 28.0 27.2 37.1Property, plant and equipment written off - - 0.2Share of (profit) of joint ventures and (2.2) (0.7) (1.7)associatesImpairment losses for property, plant and - - 15.2equipment(Profit) on sale of property, plant and (3.3) (0.5) (3.2)equipment(Gain) on sale of joint venture - - (51.8)Employee stock options 0.5 0.3 0.4Investment income (6.4) (2.5) (5.8)Interest expense 30.1 29.5 41.5Income tax expense 17.6 6.0 31.4 ---------- ---------- ----------Cash generated from operations before 105.8 84.1 122.9changes in working capital and provisionsIncrease in stocks, trade and other (14.4) (11.0) (6.9)receivables(Increase)/decrease in development (20.4) 1.9 2.4properties / held for sale(Decrease)/increase in trade and other (4.6) 4.2 4.8payablesDecrease in provisions (0.3) (0.3) (0.4) ---------- ---------- ----------Cash generated from operations 66.1 78.9 122.8Net interest paid (21.6) (25.6) (35.5)Income taxes paid (10.6) (4.0) (10.5) ---------- ---------- ----------Net cash from operating activities 33.9 49.3 76.8 ---------- ---------- ----------Cash flows from investing activitiesProceeds from sale of property, plant and 16.3 3.1 45.1equipmentChange in other current financial assets (0.2) 0.9 0.3Disposal of joint venture 6.4 - 90.8Acquisition of property, plant and (22.4) (12.7) (25.4)equipment ---------- ---------- ----------Net cash from investing activities 0.1 (8.7) 110.8 ---------- ---------- ----------Cash flows from financing activitiesProceeds from the issue of share capital 1.8 1.4 1.4Purchase of shares from minority - (5.9) (5.9)interestsRepayment of borrowings (379.1) (260.4) (396.9)Drawdown of borrowings 372.0 240.3 273.1Payment of finance lease liabilities (1.8) (1.6) (1.6)Payment of finance costs (1.4) (0.6) (0.6)Dividends paid to minorities (2.1) (2.5) (1.6)Equity dividends paid (29.8) (1.5) (3.0) ---------- ---------- ----------Net cash from financing activities (40.4) (30.8) (135.1) ---------- ---------- ----------Net (decrease)/increase in cash and cash (6.4) 9.8 52.5equivalentsCash and cash equivalents at beginning of 90.7 40.5 40.5periodEffect of exchange rate fluctuations on 6.1 (1.7) (2.3)cash held ---------- ---------- ----------Cash and cash equivalents at period end 90.4 48.6 90.7 ---------- ---------- ---------- Segmental informationFor the nine months ended 30 September 2005 (unaudited) New Regional London Rest of Asia Austra- Total York US Europe lasia Group 2005 2005 2005 2005 2005 2005 2005 £m £m £m £m £m £m £m REVENUEHotel 62.5 83.7 57.5 70.4 109.2 35.4 418.7Non-hotel - 1.9 - - 1.1 5.9 8.9------------------------ ------ ------ ------ ------ ------ ------ ------Total 62.5 85.6 57.5 70.4 110.3 41.3 427.6------------------------ ------ ------ ------ ------ ------ ------ ------ HOTEL GROSS OPERATING PROFIT 19.1 17.8 27.3 21.3 38.7 14.3 138.5Hotel fixed charges (9.5) (13.1) (10.1) (12.6) (16.0) (7.1) (68.4)------------------------ ------ ------ ------ ------ ------ ------ ------HOTEL OPERATING PROFIT 9.6 4.7 17.2 8.7 22.7 7.2 70.1NON-HOTEL OPERATING PROFIT - 0.5 - - 0.6 2.6 3.7Central Costs - - - - - - (9.3)------------------------ ------ ------ ------ ------ ------ ------ ------GROUP OPERATING PROFIT BEFORE - - - - - - 64.5OTHER OPERATING INCOME ANDEXPENSESOther operating income 12.8 - - - - 3.3 16.1Other operating expense - - - - - - -Share of operating profits of - - - - 2.2 - 2.2joint ventures ------ ------ ------ ------ ------ ------ ------------------------------PROFIT BEFORE FINANCING COSTS - - - - - - 82.8Net financing costs - - - - - - (23.7)------------------------ ------ ------ ------ ------ ------ ------ ------PROFIT BEFORE TAX - - - - - - 59.1------------------------ ------ ------ ------ ------ ------ ------ ------ Segmental informationFor the nine months ended 30 September 2004 (unaudited and restated) Reported Currency New Regional London Rest of Asia Austra- Total York US Europe lasia Group 2004 2004 2004 2004 2004 2004 2004 £m £m £m £m £m £m £m REVENUEHotel 54.9 74.9 55.7 66.8 99.1 32.4 383.8Non-hotel - 1.9 - - 1.0 13.2 16.1------------------------ ------ ------ ------ ------ ------ ------ ------Total 54.9 76.8 55.7 66.8 100.1 45.6 399.9------------------------ ------ ------ ------ ------ ------ ------ ------ HOTEL GROSS OPERATING PROFIT 14.4 15.8 28.3 19.7 34.8 13.1 126.1Hotel fixed charges (9.4) (13.1) (9.9) (13.2) (15.9) (6.5) (68.0)------------------------ ------ ------ ------ ------ ------ ------ ------HOTEL OPERATING PROFIT 5.0 2.7 18.4 6.5 18.9 6.6 58.1NON-HOTEL OPERATING PROFIT - 0.3 - - 0.6 6.3 7.2Central costs - - - - - - (8.7)------------------------ ------ ------ ------ ------ ------ ------ ------GROUP OPERATING PROFIT BEFORE - - - - - - 56.6OTHER OPERATING INCOME ANDEXPENSESOther operating income - - - - 0.5 - 0.5Other operating expense - - - - - - -Share of operating profits of (1.2) - - - 1.9 - 0.7joint ventures ------ ------ ------ ------ ------ ------ ------------------------------PROFIT BEFORE FINANCING COSTS - - - - - - 57.8Net financing costs - - - - - - (27.0)------------------------ ------ ------ ------ ------ ------ ------ ------PROFIT BEFORE TAX - - - - - - 30.8------------------------ ------ ------ ------ ------ ------ ------ ------ Key operating statisticsFor the nine months ended 30 September 2005 (unaudited) 9 months 9 months 9 months Year ended ended ended ended 31 December 30 September 30 September 30 September 2004 2005 2004 2004 Reported Constant Reported Reported currency currency currency currencyOccupancy (%)New York 83.7 83.4 83.4 84.0Regional US 68.2 61.2 61.2 61.2USA 71.8 66.7 66.7 66.9London 84.8 82.4 82.4 83.5Rest of Europe 72.8 72.7 72.7 72.8Europe 78.2 77.0 77.0 77.6Asia 73.3 72.9 72.9 73.2New Zealand 68.1 70.9 70.9 71.5Group 73.2 71.5 71.5 71.8 ---------- --------- ---------- ---------- Average room rate(£)New York 119.86 101.43 103.04 108.77Regional US 49.19 52.66 53.50 52.91USA 68.02 67.88 68.96 70.43London 79.29 78.98 78.98 79.79Rest of Europe 69.77 66.63 66.17 66.67Europe 74.35 72.49 72.25 72.93Asia 51.30 48.15 46.12 46.76New Zealand 43.02 40.32 37.80 38.77Group 62.41 60.21 59.63 60.59 ---------- --------- ---------- ---------- RevPAR (£)New York 100.32 84.59 85.94 91.37Regional US 33.55 32.23 32.74 32.38USA 48.84 45.28 46.00 47.12London 67.24 65.08 65.08 66.62Rest of Europe 50.79 48.44 48.11 48.54Europe 58.14 55.82 55.63 56.59Asia 37.60 35.10 33.62 34.23New Zealand 29.30 28.59 26.80 27.72Group 45.68 43.05 42.64 43.50 ---------- --------- ---------- ---------- Gross operatingprofit %New York 30.6 26.2 28.9Regional US 21.3 21.1 21.0USA 25.2 23.3 24.4London 47.5 50.8 51.2Rest of Europe 30.3 29.5 30.0Europe 38.0 39.2 39.5Asia 35.4 35.1 35.4New Zealand 40.4 40.4 41.6Group 33.1 32.9 33.6 ---------- --------- ---------- ---------- Consolidated income statementFor the three months ended 30 September 2005 (unaudited) 3 months ended 3 months ended 30 September 30 September 2005 2004 £m £m Unaudited Unaudited Revenue 146.6 136.3 Cost of sales (64.3) (59.5) ----------- -----------Gross profit 82.3 76.8 Administrative expenses (58.2) (54.5) ----------- -----------Group operating profit before other 24.1 22.3operating income and expenses Other operating income 3.3 -Other operating expenses - - ----------- -----------Group operating profit 27.4 22.3 Share of profit of joint ventures andassociates ----------- --------------------------------------- operating profit 1.6 1.4- interest (0.3) (1.0)- taxation (0.5) (0.1)- minority interest (0.4) (0.3)--------------------------- ----------- ----------- 0.4 - Finance expenses (10.7) (10.3)Finance income 2.9 1.2 ----------- -----------Profit before tax 20.0 13.2 Income tax expense (5.0) (2.6) ----------- -----------Profit for the period 15.0 10.6 ----------- ----------- Attributable to:Equity holders of the parent 12.4 8.3Minority interest 2.6 2.3 ----------- ----------- 15.0 10.6 ----------- ----------- Key operating statisticsFor the three months ended 30 September 2005 (unaudited) 3 months 3 months 3 months ended 30 ended 30 ended 30 September September September 2005 2004 2004 Reported Constant Reported currency currency currencyOccupancy (%)New York 85.5 82.7 82.7Regional US 74.8 70.9 70.9USA 77.3 73.9 73.9London 84.8 90.2 90.2Rest of Europe 73.5 75.5 75.5Europe 78.5 82.0 82.0Asia 77.2 75.9 75.9New Zealand 62.1 66.3 66.3Group 75.5 75.4 75.4 --------- --------- --------- Average room rate (£)New York 131.43 109.49 107.81Regional US 51.98 55.10 54.58USA 72.06 70.32 69.46London 79.11 78.16 78.16Rest of Europe 68.09 64.32 63.79Europe 73.37 71.07 70.80Asia 50.37 47.64 44.62New Zealand 43.25 40.32 37.32Group 63.73 61.04 59.53 --------- --------- --------- RevPAR (£)New York 112.37 90.55 89.16Regional US 38.88 39.07 38.70USA 55.70 51.97 51.33London 67.09 70.50 70.50Rest of Europe 50.05 48.56 48.16Europe 57.60 58.28 58.06Asia 38.89 36.16 33.87New Zealand 26.86 26.73 24.74Group 48.12 46.02 44.89 --------- --------- --------- Gross operating profit %New York 33.6 26.9Regional US 25.9 27.5USA 29.2 27.5London 46.0 51.8Rest of Europe 31.1 29.7Europe 37.9 40.0Asia 34.0 33.5New Zealand 36.6 37.0Group 33.5 33.7 Notes to the consolidated financial statements 1 Basis of preparation Millennium & Copthorne Hotels plc (the "Company") is a company domiciled in theUnited Kingdom. The consolidated interim financial statements of the Company forthe nine months ended 30 September 2005 comprise the Company and itssubsidiaries (together referred to as the "Group") and the Group's interest inassociates and jointly controlled entities. EU law (IAS Regulation EC 1606/2002) requires that the next annual consolidatedfinancial statements of the Company, for the year ending 31 December 2005, beprepared in accordance with International Financial Reporting Standards (IFRSs)adopted for use in the EU ("adopted IFRSs"). This interim financial informationhas been prepared on the basis of the recognition and measurement requirementsof IFRSs in issue that either are endorsed by the EU and effective (or availablefor early adoption) at 31 December 2005 or are expected to be endorsed andeffective (or available for early adoption) at 31 December 2005, the Group'sfirst annual reporting date at which it is required to use adopted IFRSs. Based on these adopted and unadopted IFRSs, the directors have made assumptionsabout the accounting policies expected to be applied, as set out in the Group'squarterly financial information for the three month period ended 31 March 2005,when the first annual IFRS financial statements are prepared for the year ending31 December 2005. In particular, the directors have assumed that IAS 19: Employee Benefits (as amended) will be adopted by the EU in sufficient time thatthey will be available for use in the annual IFRS financial statements for theyear ending 31 December 2005. In addition, the adopted IFRSs that will be effective (or available for earlyadoption) in the annual financial statements for the year ending 31 December2005 are still subject to change and to additional interpretations and thereforecannot be determined with certainty. Accordingly, the accounting policies forthat annual period will be determined finally only when the annual financialstatements are prepared for the year ending 31 December 2005. The quarterly financial information does not include all of the informationrequired for full annual financial statements and none of the financialinformation included within the quarterly financial information has been subjectto audit. The comparative figures for the financial year ended 31 December 2004 are notthe Company's statutory accounts for the financial year. These accounts, whichwere prepared under UK GAAP, have been reported on by the Company's auditors anddelivered to the registrar of companies. The report of the auditors wasunqualified and did not contain statements under section 237(2) or (3) of theCompanies Act 1985. 2 Other operating income/other operating expenses 9 months 9 months Year ended ended ended 31 December 30 September 30 September 2004 2005 2004 £m £m £m Unaudited Unaudited Unaudited(a) Other operating income (i) Business interruption 12.8 - - insurance proceeds (ii) Profit on disposal of 3.3 0.5 3.2 fixed assets (iii) Profit on disposal of - - 51.8 joint venture ---------- ---------- --------- 16.1 0.5 55.0 ---------- ---------- ---------(b) Other operating expenses Impairment of US hotel - - (15.2) properties ---------- ---------- --------- 3 Assets held for sale At 31 December 2004, the following assets were presented as held for sale with atotal carrying value of £14.5m: • Commercial property assets held in Sydney: this comprises part of the former Millennium Sydney hotel property and the adjoining retail and conference centre. The Bayswater Tower part of these assets was sold during the third quarter of 2005. The Kingsgate shopping centre was sold in October 2005, and the remaining assets are expected to be sold during the remainder of the year, and as such are presented as held for sale at 30 September 2005. • Kingsgate Hotel Greenlane, Auckland: this asset was sold in January 2005. No impairment loss was required to be recognised in the prior or current periodin respect of these properties. The total carrying amount of assets held forsale as at 30 September 2005 is £9.2m. 4 Income taxes Income tax expense for the nine month period presented is the expected taxpayable on the taxable income for the period, calculated as the estimatedaverage annual effective income tax rate applied to the pre-tax income of theperiod. The tax charge for the period comprises both the Group tax charge and the jointventure taxation charge which, under IFRS, is included separately within theGroup's share of joint venture profits (but disclosed on the face of the incomestatement). The estimate annual effective tax rate is applied to profit before tax,including the Group's share of joint venture profits, stated before taxation andminority interest share for the period. We have followed our practice in theprevious two quarters of excluding the Millenium Hilton business interruptionproceeds and the tax thereon from this calculation. On this basis, the Group'seffective tax rate is 25.6% (2004: 20.5%). The taxation payable in respect of the £12.8m Millenium Hilton insuranceproceeds is estimated at £6.0m. 5 Earnings per share Nine months ended 30 SeptemberThe basic earnings per share of 12.5p (2004: earnings per share of 6.4p) arebased on a profit attributable to equity holders of the parent of £35.8m (2004:profit of £18.2m) and a weighted average number of shares in issue of 286.6million (2004: 283.9 million) being the average number of shares in issue in theperiod. The diluted earnings per share of 12.4p (2004: earnings per share of 6.4p) arebased on a weighted average number of shares in issue of 287.6 million (2004:284.6 million) being the average number of shares in issue in the periodadjusted for the exercise of dilutive share options. 6 Reconciliation of equity (unaudited) Share Share Reval Translation Hedging Retained Total Minority Total capital premium reserve reserve reserve earnings interest equity £m £m £m £m £m £m £m £m £m Balance at 1 January 84.8 845.8 247.3 - - (45.6) 1,132.3 117.2 1,249.52004Total recognised - - 21.6 (40.7) - 48.6 29.5 11.5 41.0income and expenseDividends to - - - - - (11.7) (11.7) - (11.7)shareholdersDividends paid - - - - - - - - (1.6) (1.6)minority interestsIssue of shares in 0.9 (0.9) - - - 8.7 8.7 - 8.7lieu of dividendsShare options 0.2 1.2 - - - - 1.4 - 1.4exercisedEquity settled - - - - - 0.4 0.4 - 0.4transactionsPurchase of minority - - - - - - - (4.7) (4.7)interestTransfer of realisedprofit- annual - - (0.5) - - 0.5 - - -depreciation charge- Profit on disposal - - (22.4) - - 22.4 - - -of fixed assets ------ ------- ------ ------- ------ ------ ------ ------ ------Balance at 31 85.9 846.1 246.0 (40.7) - 23.3 1,160.6 122.4 1,283.0December 2004 Balance at 1 January 85.9 846.1 246.0 (40.7) - 23.3 1,160.6 122.4 1,283.02005First time adoption - - - - (4.0) (1.4) (5.4) - (5.4)of IAS39 ------ ------- ------ ------- ------ ------ ------ ------ ------Balance restated at 85.9 846.1 246.0 (40.7) (4.0) 21.9 1,155.2 122.4 1,277.61 January 2005Total recognised - - - 50.6 4.0 34.1 88.7 13.1 101.8income & expenseDividends to - - - - - (35.8) (35.8) - (35.8)shareholdersDividends paid - - - - - - - - (2.1) (2.1)minority interestsIssue of share 0.2 1.6 - - - - 1.8 - 1.8optionsEquity settled - - - - - 0.5 0.5 - 0.5transactions ------ ------- ------ ------- ------ ------ ------ ------ ------Balance at 30 86.1 847.7 246.0 9.9 - 20.7 1,210.4 133.4 1,343.8September 2005 ------ ------- ------ ------- ------ ------ ------ ------ ------ 7 Explanation of the transition to IFRS (a) Accounting policies The IFRS accounting policies adopted in this interim statement are consistentwith those published in the Group's quarterly announcement for the three monthperiod ended 31 March 2005, dated 5 May 2005. These accounting policies havebeen consistently applied in preparing the quarterly financial information forthe nine months ended 30 September 2005, the comparative information for thenine months ended 30 September 2004, the financial statements for the year ended31 December 2004 and the preparation of an opening IFRS balance sheet at 1January 2004 (the Group's date of transition). The Group has applied the transition adoption rules of IAS 32: FinancialInstruments (Disclosure and presentation) and IAS 39: Financial Instruments(Recognition and measurement). The Group has therefore applied these standards,and the related accounting policies, only with effect for the current periodfrom 1 January 2005 and not within the 2004 comparative financial periods. An explanation of how the transition from UK GAAP to IFRSs has affected theGroup's financial position, financial performance and cash flows for the yearended 31 December 2004 was set out in Group's quarterly announcement for thethree month period ended 31 March 2005. The transition adjustments in respect ofthe financial position at 30 September 2004 and the financial performance of theperiod then ended are set out in notes 7(b) to 7(f). (b) Balance sheet as at 30 September 2004 (unaudited) UK Lease Assets New Employee Deferred Dividend Translation IFRS GAAP premium held Zealand benefits taxes reserve pre for land reclass payment sale bank sales £m £m £m £m £m £m £m £m £m (d)i (d)iii (d)iv (d)v (d)vii (d)viiiAssetsProperty, plant and 1,972.5 (92.0) - - - - - - 1,880.5equipmentLease premium - 89.8 - - - - - - 89.8prepaymentInvestment properties 86.1 - - - - - - - 86.1Investments in joint 57.9 (0.1) - - - (13.0) - - 44.8ventures andassociatesLoans due from joint 31.9 - - - - - - - 31.9ventures andassociatesOther non-current 2.2 - - - - - - - 2.2assets ------ ------ ------ ------ ------ ------ ------ ------- ------Total non-current 2,150.6 (2.3) - - - (13.0) - - 2,135.3assets ------ ------ ------ ------ ------ ------ ------ ------- ------Assets held for sale - - - - - - - - -Inventories 3.7 - - - - - - - 3.7Development 17.6 - - 0.7 - - - - 18.3propertiesTrade and other 63.7 1.3 - (1.9) - - - - 63.1receivablesCash and cash 48.6 - - - - - - - 48.6equivalentsOther current 3.5 - - - - - - - 3.5financial assets ------ ------ ------ ------ ------ ------ ------ ------- ------Total current assets 137.1 1.3 - (1.2) - - - - 137.2 ------ ------ ------ ------ ------ ------ ------ ------- ------Total assets 2,287.7 (1.0) - (1.2) - (13.0) - - 2,272.5 ------ ------ ------ ------ ------ ------ ------ ------- ------ LiabilitiesLong term borrowings 591.7 - - - - - - - 591.7Employee benefits 4.6 - - - 8.5 - - - 13.1Other non-current 6.9 - - - - - - - 6.9liabilitiesProvisions 2.5 - - - - - - - 2.5Deferred tax 49.9 - - - - 143.6 - - 193.5liabilities ------ ------ ------ ------ ------ ------ ------ ------- ------Total non-current 655.6 - - - 8.5 143.6 - - 807.7liabilities ------ ------ ------ ------ ------ ------ ------ ------- ------Current portion of 102.6 - - - - - - - 102.6long term borrowingsTrade and other 101.8 - - 0.2 - - - - 102.0payablesIncome taxes payable 16.1 - - (0.4) - - - - 15.7 ------ ------ ------ ------ ------ ------ ------ ------- ------Total current 220.5 - - (0.2) - - - - 220.3liabilities ------ ------ ------ ------ ------ ------ ------ ------- ------Total liabilities 876.1 - - (0.2) 8.5 143.6 - - 1,028.0 ------ ------ ------ ------ ------ ------ ------ ------- ------ Net Assets 1,411.6 (1.0) - (1.0) (8.5) (156.6) - - 1,244.5 ------ ------ ------ ------ ------ ------ ------ ------- ------ EquityIssued capital 85.5 - - - - - - - 85.5Share premium 846.5 - - - - - - - 846.5Revaluation reserve 293.4 8.2 - - - (57.3) - 3.0 247.3Retained earnings 65.3 (9.2) - (0.5) (8.4) (91.7) - (3.0) (47.5) ------ ------ ------ ------ ------ ------ ------ ------- ------Total equityattributable toequity holders of the 1,290.7 (1.0) - (0.5) (8.4) (149.0) - - 1,131.8parentMinority interest 120.9 - - (0.5) (0.1) (7.6) - - 112.7 ------ ------ ------ ------ ------ ------ ------ ------- ------Total equity 1,411.6 (1.0) - (1.0) (8.5) (156.6) - - 1,244.5 ------ ------ ------ ------ ------ ------ ------ ------- ------ (c) Reconciliation of profit for the nine months ended 30 September 2004(unaudited) UK Lease New Employee Share Deferred Joint IFRS GAAP premium Zealand benefits based taxes venture pre land payments reclass payment bank sales £m £m £m £m £m £m £m £m (d)i (d)iv (d)v (d)vi (d)vii Revenue 397.5 - 2.4 - - - - 399.9 Cost of sales (177.3) - (1.9) - - - - (179.2) ------ ------ ------- ------ ------ ------ ------ ------Gross profit 220.2 - 0.5 - - - - 220.7 Administrative (162.4) (0.9) (0.2) (0.3) (0.3) - - (164.1)expenses ------ ------ ------- ------ ------ ------ ------ ------Group operating profit 57.8 (0.9) 0.3 (0.3) (0.3) - - 56.6before other operatingincome and expenses Other operating income 0.5 - - - - - - 0.5Other operating - - - - - - - -expenses ------ ------ ------- ------ ------ ------ ------ ------ 58.3 (0.9) 0.3 (0.3) (0.3) - - 57.1Group operating profit Share of profit ofjoint ventures and ------ ------ ------- ------ ------ ------ ------ ------associates----------------- operating profit 5.4 (0.1) - - - - - 5.3- interest - - - - - - (2.8) (2.8)- taxation - - - - - - (0.5) (0.5)- minority interest - - - - - - (1.3) (1.3)---------------- ------ ------ ------- ------ ------ ------ ------ ------ 5.4 (0.1) - - - - (4.6) 0.7 Finance expenses (32.3) - - - - - 2.8 (29.5)Finance income 2.5 - - - - - - 2.5 ------ ------ ------- ------ ------ ------ ------ ------Profit before tax 33.9 (1.0) 0.3 (0.3) (0.3) - (1.8) 30.8 Income tax expense (5.7) - (0.2) - - (0.6) 0.5 (6.0) ------ ------ ------- ------ ------ ------ ------ ------Profit for the period 28.2 (1.0) 0.1 (0.3) (0.3) (0.6) (1.3) 24.8 ------ ------ ------- ------ ------ ------ ------ ------Attributable to:Equity holders of the 21.8 (1.0) - (0.3) (0.3) (2.0) - 18.2parentMinority interest 6.4 - 0.1 - - 1.4 (1.3) 6.6 ------ ------ ------- ------ ------ ------ ------ ------ 28.2 (1.0) 0.1 (0.3) (0.3) (0.6) (1.3) 24.8 ------ ------ ------- ------ ------ ------ ------ ------ Basic earnings per 7.7 - - - - - - 6.4share (pence)Diluted earnings per 7.7 - - - - - - 6.4share (pence) (d) Explanation of adjustments between UK GAAP and IFRS (unaudited) (i) Lease premium prepaymentThe Group has adopted the requirements of IAS 17: Leases. IAS 17 requires alease of land and buildings to be considered separately between its land andbuilding constituent parts. Land is only able to be treated as a tangible fixedasset, held under a finance lease, where the Group will obtain title to the landduring or at the end of the lease term. The Group holds a number of hotels under long leases where land title is notanticipated to pass to the Group under the terms of the lease. In respect ofthese leases, under UK GAAP, payment made on entering into or acquiringleasehold land and buildings was previously all included within tangible fixedassets and the cost less residual value was depreciated over the shorter of itslease length and useful economic life. Under IFRS, the initial payment made in respect of the operating leased land isrequired to be accounted for as a prepayment and amortised in full over thelease term in accordance with the pattern of benefits provided. This change in accounting policy has been adopted retrospectively, by way ofprior year adjustment, to the date of lease acquisition by the Group. Retainedreserves at 30 September 2004 have been debited by £9.2m accumulatedamortisation which would have been charged to that date, in excess ofdepreciation previously charged under UK GAAP. This prior year adjustment hasnot all impacted total equity as a credit of £8.2m has been recorded to therevaluation reserve at 30 September 2004, to reflect how the Group's totalinterest in the hotel property is carried at valuation and in aggregate, shouldbe maintained at the level of the most recent external valuation recorded. This change in accounting policy has increased the annual amortisation charge inrespect of Group and joint venture leasehold land by £1.4m. The Group and jointventure charge for the nine months to 30 September 2004 has been increased by£1.0m. Long leasehold buildings' lease premium continue to be accounted for as tangiblefixed assets held under finance leases where the Group holds the asset forsubstantially all of its useful economic life. (ii) Investment propertyThe Group has adopted IAS 40: Investment Property. IAS 40 is consistent with theGroup's previous accounting policy of revaluing investment properties annually.The principal change under IFRS is that valuation surpluses and deficits arisingare required to be recorded in the income statement (other operating income)under IAS 40. Under UK GAAP, such surpluses and deficits were recorded directlywithin reserves. However, this change of accounting policy has not impacted the 2004 incomestatement as no investment property valuation movements were recorded in thatyear. (iii) Assets held for saleThe Group applied IFRS 5 retrospectively from 1 January 2004 in respect ofassets held for sale, details of which are set out in note 3. (iv) New Zealand land bank salesOn adoption of IAS 18, the Group changed the timing of revenue recognition inrespect of its non-hotel land development sales. Revenue in respect of thesesales is now recognised on transfer of legal title. Under UK GAAP, revenue wasrecognised on agreement of an unconditional contract.Operating profit for the year ended 31 December 2004 and the nine months ended30 September 2004 was increased by £1.3m and £0.3m respectively. Total equity at 30 September 2004 has been reduced by £1.0m. (v) Employee benefitsIAS 19: Employee Benefits permits full recognition of defined benefit pensionobligations in the financial statements and the Group has adopted this option.Adoption of IAS 19 reduced equity at 30 September 2004 by £8.5m (excludingrecognition of deferred tax). Actuarial gains and losses of £3.3m and £2.5m were charged to the statement ofrecognised income and expense in the year ended 31 December 2004 and nine monthsended 30 September 2004 respectively. The pension charge to the income statementwas increased in the year ended 31 December 2004 by £0.4m and in the nine monthsended 30 September 2004 by £0.3m. (vi) Share based paymentsThe Group applied IFRS 2 requiring recognition of its active employeeshare-based payment arrangements at fair value at 1 January 2005 except forequity-settled employee share-based payment arrangements granted before7 November 2002. The Group has granted employee equity-settled share-basedpayments in 2004 and 2005. The Group previously accounted for these share-based payment arrangements atintrinsic value under UK GAAP. The effect of accounting for equity-settled share-based payment transactions atfair value is to increase administrative expenses by £0.3m for the nine monthsended 30 September 2004 and by £0.4m for the year ended 31 December 2004. Theadoption of IFRS 2 is equity-neutral for equity-settled transactions. (vii) Deferred taxes 30 September 2004 £m Unaudited Group deferred tax liability - 49.9UK GAAP ----------- Property assets* 176.1Employee benefits (2.4)Other deferred taxation (3.6)Tax losses carried forward (26.5) -----------Increase in deferred tax 143.6liability ----------- Group deferred tax liability - 193.5IFRS ----------- *Property assets comprise Property, Plant and Equipment, investment properties,assets held for sale and leasehold land prepayments The Group deferred tax liability has been increased at 30 September 2004 asshown in the table. In addition, a £13.0m deferred tax liability has beenrecognised in respect of joint ventures. The increase in liability in respect of property assets is a result of therequirement under IFRS to provide for deferred tax for fair value adjustmentsand revaluation surpluses. Deferred tax is matched to how the asset value willbe recovered, either through use in the business or through sale. Under UK GAAP,such provision was not required. This adjustment is significant, principally dueto the Group having adopted a policy of carrying its hotel property assets atopen market value. The provision for employee benefits and defined benefit pension liabilities, asset out above, gives rise to a matching recognition of a deferred tax asset. The overall increase in deferred tax liabilities resulting from property assetshas allowed the Group to increase its matching recognition of tax losses, whichwere not recorded in the balance sheet under UK GAAP. Such losses are recognisedas deferred tax assets to the extent that it is probable that future taxableprofits will be available against which the asset can be utilised. The effect on the income statement for the nine months ended 30 September 2004and for the year ended 31 December 2004, respectively, was to increase thepreviously reported tax charge for the period, respectively, by £0.6m and£15.3m. (viii) DividendsUnder IFRS dividends are recorded as liabilities in the period in which they aredeclared. Under previous UK GAAP dividends were recorded when proposed. (e) Reconciliation of financial instruments as if IAS 39 was applied at 1January 2005(unaudited) UK Effect of IFRSs GAAP Transition £m £m to IFRSs £m Fair value derivatives - (5.4) (5.4) ------- ------- -------Hedging reserve - (5.4) (5.4) ------- ------- ------- Under UK GAAP, the Group did not recognise derivatives on the balance sheet. Inaccordance with IFRS derivatives should be recognised at fair value. IAS39:Financial Instruments - measurement has been adopted with effect from 1 January2005. The effect is to record the fair value of derivatives on the balancesheet, increasing current liabilities and reducing equity by £5.4m at 1 January2005. (f) Total effect on equity (unaudited) A summary of the effect on total equity at 30 September 2004 of the adjustmentsset out in (a) to (d) is set out below: 30 September 2004 £m Lease premium prepayment (1.0)Real estate and land development (1.0)salesEmployee benefits (8.5)Income taxes - joint ventures (13.0)Income taxes - Group (143.6) ----------Total (167.1) ---------- This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Millennium & Copthorne Hotels