Somerset Achieves Turnaround With $11.9m Profit
Singapore July 27, 2000 -- Somerset Holdings' turnaround efforts have resulted in net profit attributable to shareholders of $11.9 million for the first half of this year compared to a $17.1 million loss for the same period last year.
Earnings per share after extraordinary income rose to 0.93 cents, from a loss per share of 3.62 cents.
The group achieved a pre-tax profit before extraordinary item of $12.6 million, a jump of 280 per cent from the $3.3 million for the same period last year. Profit after tax and minority interests but before extraordinary item rose to $5.0 million, from $1.5 million.
In addition, Somerset made an extraordinary gain of $6.9 million, arising largely from the divestment of an investment property in London. Turnover leapt 24 per cent to $88.7 million for the first six months of the year.
No interim dividend for the period has been recommended.
Somerset's chief executive officer, Mr Kee Teck Koon, said that the significantly improved results show the success of the company's implementation of its five strategic thrusts since October last year, following its acquisition by Pidemco Land.
The turnaround strategies involve the company's focusing on its core business, improving the quality and yield of its portfolio, divesting its non-core assets, developing its brand, and improving its financial position.
Mr Kee added : "Except for start-up operations, our performance is largely on track against our profit and productivity targets. Our divestment of non-core assets is progressing well and this has enabled us to focus our energies on marketing activities and improving yields in our core business.
"We should also benefit from the continuing strength of the Singapore economy and the general recovery in the region. However, we do not expect the second half year's profits to be as high as those of the first half's."
Improved Serviced Residence Performance
Mr Kee said that Somerset's rebound and improved turnover came from the stronger performance of its serviced residence properties such as Somerset Liang Court and Somerset Compass, and the properties it had acquired in the asset swap with Pidemco Land in the second half of last year, such as Somerset Grand Cairnhill and Funan The IT Mall.
Contribution from the Junction 8 retail mall, which it fully acquired in December 1999, and residential sales in London and Sydney also contributed to the higher turnover and profits.
Mr Kee added that the performance of Somerset's core serviced residence business is healthy, paving the way for the company's growth into a pure play serviced residence business.
Somerset continues to outperform the market in most of the cities in which it operates. In Singapore for instance, the company's four serviced residence properties averaged over 92 per cent occupancy for the first six months of the year, against the market's average of 87 per cent for the same period.
In Sydney, Somerset Hyde Park boasts 81 per cent occupancy for the first half of this year, against the market average of 66 per cent; while in Ho Chi Minh City, Somerset Chancellor Court achieved 93 per cent occupancy against the market's 85 per cent.
Consequently, the serviced residence sector's gross operating profit margin has shown steady improvement, said Mr Kee. The gross margin for Somerset's Singapore serviced residences, for example, jumped from an average 61.3 per cent in the first half of last year, to almost 70 per cent this year.
Even Somerset Grand Shanghai in China and Somerset Grand Metropolis in New Zealand, which were fully opened less than a year ago, are showing rising occupancies. However, as expected of start-up operations, they chalked up losses and will continue to do so in the second half of the year.
In the first six months, the group's overall interest expense rose by $9.6 million due mainly to increased borrowings, particularly for borrowings on completed properties, where interest expenses previously capitalised are expensed to the profit and loss accounts once these properties begin operations.
Depreciation and amortisation increased by $2.2 million due mainly to the commencement of operations at Somerset Grand Shanghai and Masters Golf Course and the acceleration of depreciation rates to conform with those of the parent company, Pidemco Land.
The company's brand development activities have been successfully stepped up and a strong marketing referral network is now established in 16 cities in 10 countries. The Somerset Residences brand is gaining premier "mindshare" regionally among its target multinational company clients for its product and service quality, said Mr Kee.
He added that Somerset's proposed merger with The Ascott Limited will accelerate the achievement of the company's growth targets. Somerset had planned to have 5,100 units by 2002 vs its current 3,200 units. The combined company would boast over 6,000 units by year 2000, assuming the proposed merger gets the nods before the end of the year.
"Our larger size and market presence will create a unique opportunity for us to compete more effectively for global leadership in the fast- growing serviced residence industry," he said.
Mr Kee added that the merger will enable Ascott and Somerset to consolidate their strong brand presence in the Asia Pacific region, and achieve the critical mass and international presence to establish global brands.
The greater scale will also provide the company with a stronger platform to expand internationally, negotiate third party management contracts, and attract new opportunities and alliances.
Somerset would also be able to exploit synergies and economies of scale, and benefit from its larger pool of management expertise and human resources.
The combined company with larger market capitalisation will have improved liquidity resulting in greater international investor interest. It would also have a stronger capital base to grow the business and enhanced financial strength.
Mr Kee added that with the combined $1.07 billion in serviced residence assets, the merged company can exist as a "pure play" serviced residence business. It can seek growth through market dominance and geographical diversification rather than product or business diversification.
The non-serviced residence assets can then be divested over time, and the funds reinvested in the core serviced residence business to further improve the quality of its revenue generating serviced residence portfolio.
If the merger, which is subject to regulatory and shareholders' approval, occurs before the end of the year, Somerset Holdings will be de- listed and become a wholly-owned subsidiary of The Ascott Limited. Somerset's full year results will then be consolidated and reported under The Ascott Limited.
Ida Lim, Vice President
Investor Relations & Corporate Communications
Issued by: Somerset Holdings Limited