Profit drop fails to hold back Shangri-La
Luxury hotel operator sticks to its expansion plans on the mainland despite a 66 per cent slump in first-half earnings and bleak outlook
Shangri-La Asia's first-half profit excluding gains on investment properties plunged 66 per cent year on year to US$25.7 million.
The 32 hotels the firm owns on the mainland were hit by government austerity measures and a deceleration in the economy, a trend that management said was likely to continue into the second half.
Consolidated profit for the first half increased to US$215.3 million from US$198.4 million in the same period last year.
The board declared an interim dividend of eight HK cents per share, compared with 10 HK cents a year earlier.
Three weeks before its results announcement, the luxury hotel operator issued a profit warning.
"There seems to be no positive news coming … we do think that the trends in the first six months, unless something radical happens, will probably continue for the rest of the year," chief financial officer Madhu Rao said.
Shangri-La's high exposure to the mainland market hindered its performance.
Post-tax interim profit at the mainland hotels, which account for nearly 39 per cent of the firm's revenue from hotel operations, dropped to US$2.5 million from US$15.1 million a year earlier.
An oversupply of hotels on the mainland drove occupancy rates there to an average of just 49 per cent for the first half, compared with 77 per cent at its Hong Kong properties.
Expenses for the opening of new hotels for this year, amounting to US$11.8 million, also cut into the group's bottom line. Shangri-La opened five new mainland hotels in the first half.
The US$17.6 million decline in net profit from hotel operations was partly offset by a US$4.2 million increase in net profit from investment properties, most of which showed improved yields.
Despite the bleak second-half outlook, the firm said it was optimistic about the mainland's long-term prospects and would continue its expansion there.
"These are bumps in a long journey," Rao said yesterday. "We are not cutting back. Nor are we slowing down. [Our] developments will come to the market as they have been planned, a few months [give or take], but there is no initiative to put brakes on the construction activity."
Shangri-La has a further 13 hotels on the mainland on the way.
Yesterday, the firm announced the resignation of Kuok Khoon Ean as chairman and chief executive to focus on his commitments at parent firm Kerry Group. Older brother Kuok Khoon Chen will succeed him.
Shangri-La is part of Kerry Group, the controlling shareholder of SCMP Group, which publishes the South China Morning Post.