Mandarin Oriental International Limited’s Latest Earnings: A Lackluster Year

Mandarin Oriental International Limited (SGX: M04) reported its earnings yesterday evening. The reporting period was for 1 January 2015 to 31 December 2015.

For a brief background, Mandarin Oriental is an international hotel investment and management group with properties all over the globe. Its main shareholder, Jardine Strategic Holdings Limited (SGX: J37), holds about three-quarters of its ordinary shares.

You can read more about Mandarin Oriental in here or catch up with the previous earnings report here.

By the numbers

The following’s a quick rundown on the financial figures for Mandarin Oriental:

  1. Revenue for 2015 was US$607.3 million, down 10.7% compared to 2014.
  2. Profit attributable to shareholders also fell 8% year-on-year, declining from US$97 in 2014 to US$89.3 million in 2015.
  3. Earnings per share (EPS) for the reporting period had declined by a steeper 20% from 9.25 US cents in 2014 to 7.41 US cents in 2015.
  4. Cash flow from operations came in at US$140.2 million with the purchase of tangible and intangible assets clocking in at US$51.5 million. The lighter spending gave the hotel management outfit US$88.7 million in free cash flow in 2015, down from the US$127 million in free cash flow seen a year ago (US$159.5 million in cash flow from operations and US$32.3 million in capital expenditure).
  5. As of 31 December 2015, Mandarin Oriental had US$308.6 million in cash and equivalents and US$440.4 million in borrowings. This was an improvement from the US$324.3 million in cash and equivalents and US$727.7 million in borrowings that was recorded at end-2014.
  6. The company’s net asset value per share has climbed by 7% from US$0.92 at end-2014 (after adjusting for a rights issue; more on this later) to US$0.98.

In all, Mandarin Oriental has endured a lackluster year for 2015 as both revenue and profit came in lower than in the previous year. On the flipside, the firm was able to maintain positive free cash flow. This is important as its balance sheet remains in a net debt position.

As a reminder, the company had raised US$316 million during the year through a one for four rights issue to fund its reduction in borrowings and an investment in Spain. The rights issue increased the number of shares outstanding and resulted in the company’s earnings per share falling harder than net profit.

The board of directors had proposed a final dividend of US$0.03 per share for 2015. Together with the interim dividend of US$0.02, Mandarin Oriental will be paying out US$0.05 per share in dividend for 2015, down 29% from the previous year.

A peek into the business

Revenue for the reporting period was impacted by softer demand in Hong Kong and Paris as well as ongoing renovations.

Geographically, revenue from Hong Kong fell from US$249.5 million in 2014 to US$238.6 million for 2015. Meanwhile, revenue from Europe had stepped down by 18% from US$249.6 million to US$204.9 million. The challenging conditions following the terrorist attacks in Paris and renovations in Munich had dampened Mandarin Oriental’s results there. Elsewhere, sales from the Other Asia geographical segment was also down by nearly 18% to US$100.1 million.

More spending by Mandarin Oriental to drive future growth is expected in the horizon. In May 2015, the company had acquired a 50% stake in Hotel Ritz (Madrid) for €65 million in a joint venture deal with The Olayan Group. Mandarin Oriental will contribute €45 million (around US$49 million) for a comprehensive renovation of the Hotel Ritz in 2017.

Meanwhile, Mandarin Oriental will also exercise its rights to acquire the 148-room Mandarin Oriental, Boston for US$140 million. This is expected to be completed in April 2016. Elsewhere, the group will also undertake a £85 million (US$126 million) refurbishment of Mandarin Oriental Hyde Park, London in the third-quarter of 2016.

In a short snippet, Ben Keswick, the chairman of Mandarin Oriental, had added his thoughts on the outlook ahead:

“Trading conditions in a number of Mandarin Oriental’s key markets are expected to remain challenging. Nevertheless, the Group is in a strong competitive position with an increasingly diversified geographical presence and earnings stream. Over the longer term, Mandarin Oriental will benefit from the strength of its brand and the limited new supply of luxury hotels in its key markets.”

In other words, the company is still confident about its long-term business prospects despite an expectation of facing some short-term headwinds in the near future. Investors should also note that there will be a change for the company in the chief executive officer position. Here’s Keswick explaining the situation in the earnings release:

“Edouard Ettedgui is to step down as Group Chief Executive on 31st March 2016 and we would like to thank him for his tremendous contribution to the business since his appointment in 1998. Edouard will remain on the Board as a non-executive director. He will be succeeded by James Riley who is currently the Group Finance Director of Jardine Matheson Holdings Limited, and has served on the board of Mandarin Oriental’s management company for the past ten years.”

Currently, Mandarin Oriental operates 29 properties with a further 17 properties under development. These represent 11,000 rooms in 24 countries, with 21 hotels in Asia, nine in The Americas, and 16 in Europe, the Middle East and North Africa.

Foolish summary

At its closing price of US$1.30 yesterday, Mandarin Oriental traded at 17.3 times its trailing earnings and has a dividend yield of about 3.8%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.