Somerset Holdings Improves Operating Performance but Makes Provisions to Divest Integrated Golf Course Project in China
Somerset Holdings yesterday announced that it had reduced its pre-tax loss last year to $5.1 million compared to $41.2 million in 1998.
However, its loss after tax and extraordinary items was $93.8 million due mainly to a $91.6 million extraordinary provision for its Masters Golf & Country Club project in Guangzhou, China. Without this provision, net loss attributable to shareholders would have been $2.2 million.
The company plans to divest the 95-hectare integrated golf course cum residential development. The project comprises an 18-hole golf course, 64-bay driving range, a clubhouse, and a yet to be built 60,000 square metre cluster of low-rise condominiums.
Total write-down for the project, including previous write-down in 1998, is $110.2 million.
Somerset Holdings chief executive officer, Mr Kee Teck Koon, said that at the EBITDA level, the group had improved from a loss of $6.4 million to a gain of $38.5 million.
The better performance was due to maiden contributions from properties Somerset Holdings acquired in the second half of 1999 in an asset swap with its parent company Pidemco Land, and new serviced residences which became operational during the period. These residences include Somerset Grand Shanghai in China, Somerset Grand Hanoi in Vietnam and Somerset Hyde Park in Australia.
Mr Kee said: "The turnaround efforts have progressed well, and Somerset is now poised for profitability and growth. We will focus on improving the yields of our core assets, and seizing opportunities in our main businesses, rather than be weighed down by under- performing projects such as the golf course.
"In our recent business review, we decided that it is in the best interest of the company to bite the bullet and get out of the golf course business," he said.
"Dollar for dollar of investment, given our focus and areas of competitive edge, it makes greater sense to concentrate management attention and resources on our core areas of executive residences and retail properties. Here we have the strong market presence, scale and specialist expertise to be the market leader and build shareholder value."
Mr Kee added that the golf course development would now form part of Somerset Holding's $415 million worth of non-core assets to be disposed over time. This is about 21.5 per cent of its total portfolio.
Funds from the divestments will be used to pay down debts and to strengthen the quality of the company's collection of serviced residences and retail properties.
Somerset Holdings announced last year, following a change in its controlling shareholder, that it would aggressively rationalise its portfolio to improve yield and financial performance. Pidemco Land acquired Somerset Holdings, previously called Liang Court Holdings, in May 1999.
Mr Kee sees bright prospects for the serviced residence business. "In the last three months, occupancies at most of our serviced residences have gone up. In most countries, we outperform the market by 5 to 10 per cent. If the regional economy continues to improve, room rates will move up," he said.
"We are well positioned to benefit from the regional recovery as we have dominant market presence in the Asia Pacific with more quality serviced residences in good locations than our competitors. We have established operations and strong marketing infrastructure in 22 cities."
Somerset Holdings has 3,200 serviced residence units, making it the largest Singapore-based player in the region. It aims to increase its portfolio to 5,000 units in three years' time.
Mr Kee expects Somerset's retail properties to perform better in Year 2000. He sees growing demand for well managed retail malls, and the expertise to run such malls, as consolidation continues in the regional retail property markets.
He added that stronger and newer retailers, relatively unhurt by the economic crisis, are taking advantage of the recovery and improving customer purchasing power to increase retail space and enter new geographical markets.
Mr Kee said that Somerset is entering the E-commerce arena to leverage its domain knowledge of the retail and hospitality industries, and operational network in 22 cities in the Asia-Pacific. It is setting up a new subsidiary, Somerset E-Investment Pte Ltd, with an initial capital of $20 million for such ventures.
Somerset E-Investment Pte Ltd will manage the group's investments in the E-business and spearhead programmes to E-enable the company's core businesses in areas such as marketing, sales and procurement.
To achieve this, the subsidiary will pursue business opportunities with strategic partners who have complementary domain knowledge, and technology partners with the relevant technological edge.
Going forward, Mr Kee said that Somerset Holdings will continue with its five strategic thrusts first unveiled in August last year.
In line with its strategy to strengthen its financial position, the company has completed the asset swap with Pidemco Land and reduced its gearing from 1.4 to 0.97. The group will continue to restructure its portfolio with the divestment of its $415 million non-core assets over the next two years.
Secondly, to improve the earnings quality of its portfolio, the firm has begun aggressive efforts to increase productivity. These include setting targets to treble the revenue generated by each staff, and increasing the earnings from each dollar of asset 2.7 times. It is also working to achieve savings of $1 to $2 million dollars a year over the next few years through exploiting economies of scale in its purchasing.
Somerset Holdings is also strengthening its space utilisation and merchandising mix at Liang Court Shopping Centre, to improve its yield and to take advantage of its proximity to the Clarke Quay MRT station and new residential and hotel developments there.
Thirdly, in driving its brand and franchise development, the organisation has successfully begun its brand launch and the re-flagging of the serviced residences it owns and manages across the region.
In its strategy to pursue focused growth and selective investment in its core business, the company has invested in the Somerset Grand Beijing, a prime serviced residence in China, and acquired a 60 per cent stake in Junction 8, one of the most successful suburban shopping malls in Singapore.
As part of its fifth strategy to develop alliances or partnerships with international investors as co-investors or third party managers, it has achieved a strategic tie-up with GIC for serviced residence investments in East Asia.
Somerset Holdings is a leading owner and manager of serviced residences and retail properties in the Asia Pacific region.
The company is the hospitality and retail subsidiary of Pidemco Land, and is publicly listed in Singapore. Somerset Holdings owns or manages 3,200 serviced residence units and about 300,000 square metres of retail space in the Asia Pacific.
Ida Lim, Vice President
Investor Relations & Corporate Communications
Tay Cheng Cheng, Assistant Manager
Issued by: Somerset Holdings Limited