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CDL Hotels NZ Ltd Matches Record Profit

CDL Hotels NZ Ltd Matches Record Profit

The country’s largest hotel operator, CDL Hotels New Zealand Limited (CDL), achieved earnings for the year ended 31 December 2003 on a par with the previous year’s record performance.

For the year under review the company announced an after tax profit of $17.0 million, which was a shade lower than the $17.1 million reported for the corresponding period a year earlier. The result was attained despite a $22 million drop in revenue over the period to $168 million.

The managing director of CDL, Mr Tsang Jat Meng, said the key feature of the latest performance was that the company managed to extract such a high level of profitability in a year when revenue was clearly down and operating conditions for the core hotels division were the most challenging the company had faced.

“While a lower contribution from Kingsgate International Corporation Limited did impact revenue, our ability to continue to achieve operating efficiencies was the main reason behind us maintaining our earnings at the level we did,” he said.

“In all it was a very pleasing result. We have come a long way in the last three years when you consider that our earnings for the 2000 financial year were $1.5 million.

“Clearly the rebuilding phase has been a success. It is particularly gratifying that the market is now beginning to recognise our efforts, re-rating our shares on the back of this consistency of performance.”

CDL shares have risen from 25 cents to 48 cents (up 92%) during the 2003 calendar year. While the price was still at a discount to asset backing of 68.9 cents, Mr Tsang said the recent rise in share price was a fitting reward for shareholders, many of whom have supported this company over numerous years.

CDL has resolved to pay a fully imputed dividend of 1.4 cents per share, in line with the previous year’s payment.

Although CDL reported another strong profit, operationally it was still a very challenging year for the group’s three divisions: the core New Zealand hotels business and the listed subsidiaries CDL Investments New Zealand Limited and Kingsgate International Corporation Limited.

“As we indicated at the half year, the Iraq conflict and the ongoing impact of SARS provided a testing environment for tourism operators. With a stable of 28 hotels around the country we are sensitive to any shift in demand. However, the Hotels increased their operating performance significantly” Mr Tsang said.

“There are always going to be factors that affect a business that are out of your control. So it is essential to closely manage the things that we can control such as costs and operational efficiency. Being able to react to situations quickly is vital. For example, during these latest crises we refocused our entire sales and marketing and operational strategies to counter a drop in accommodation demand from our traditional international markets.

“While conditions were tough with occupancy roughly in line with the previous year, we managed to increase the average room rate by 4.3%, which increased our overall yield by 4.4%, once again endorsing our strategy of targeting higher yielding sectors of the market.

“The company continued with its strategy of developing the domestic market, though not at the expense of international growth. International visitors continued to remain an important revenue source, accounting for 61% of our guest profile (2002: 62.9%).”

During the year under review CDL also relaunched the Kingsgate Hotels brand in New Zealand to replace the Quality brand. “The exercise to rebrand the 15 former Quality Hotels was conducted smoothly and was well within budget and agreed time frames,” Mr Tsang said.

Across the hotels group, revenue and profitability for the Copthorne and Kingsgate hotels improved. The Millennium hotels were the most exposed to international markets, having hotels located in the prime tourism centres of Queenstown, Christchurch and Rotorua. Despite substantial revenue pressure the Millennium division still increased profits.

Once again, CDL Investments (61.48% owned by CDL) provided a valuable contribution, reporting a net after tax profit of $6.60 million for the year. This compared to $5.99 million for 2002. Mr Tsang said that CDL Investments was performing to expectation. “While there are signs the property market is cooling, the company has strong management and a robust balance sheet and is therefore well placed to take advantage of opportunities as they arise.”

The contribution from Kingsgate International Corporation Limited (of which CDL owns 50.74%) fell reflecting short-term negative impacts as the company underwent a redevelopment phase. The drop in net profit to $4.02 million from $10.20 million the previous year principally related to the closure of the Millennium Hotel Sydney for its conversion into Zenith Residencies and a decline in profits from the Birkenhead Quays as the development entered its final stage. The impact in conversion of earnings from Australia operations given the stronger New Zealand dollar and a return to tax paying status also affected earnings.

The operating profit for the CDL group before tax and minority interests was $32.4 (2002: $32.8). The New Zealand hotels operations contributed 50% (2002:33%), CDL Investments 31% (2002:29%) and Kingsgate International 19% (2002:38%).

Mr Tsang said that the outlook for the group remained positive. “We have made an encouraging start to the current financial year but it is still early days. Conditions do remain challenging, particularly due to the potential impact of the high New Zealand dollar on international tourism inflows. But the group is in a strong financial position and well placed to deliver another acceptable performance.”

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