Ascott Achieves Strong Growth for its Core Serviced Residence Business
The Ascott Group's turnover surged 27 per cent to S$141.6 million, reflecting the rapid growth of its core business in serviced residences, and its stepped-up disposal of residual non-core residential properties.
Compared to the same period last year, turnover increased across all business sectors, with the serviced residence operations chalking up a 24 per cent jump to S$68 million. Retail turnover rose nine per cent to S$41.9 million, and the 'residential and others' sector increased by 71 per cent to S$31.8 million.
The group's EBITDA (profit before interest, depreciation and amortisation, exceptional items and tax) increased by 14.5 per cent to S$60.4 million. Its core serviced residence sector registered the highest EBITDA growth of 62.9 per cent to S$27.1 million, while that of its retail sector rose 21 per cent to S$31 million.
However, the group's operating profit increased by only five per cent due to a substantial decline in profit contribution from its non-core residential business, where profit margins were squeezed by weaker demand.
The company recorded a pre-exceptional net profit of S$8.8 million. However, inclusive of exceptional items, net profit dipped to S$4.1 million, compared to S$17.5 million for the same period last year. This was due to a S$10.5 million exceptional loss from the sale of its interest in The Masters Golf and Country Club, and lower contributions from the 'residential and others' sector.
The group's chief executive officer, Mr Kee Teck Koon, said: "Going forward, the group's revenue and profitability growth will be powered by the serviced residence business, as other non-core assets are progressively divested. We have since January added another 590 units to our operational serviced residence inventory, bringing the total to 4,416 units.
"Despite challenging economic conditions, our serviced residences continued to achieve revenue growth, ranging from two per cent in Hanoi to as high as 34 per cent in Shanghai. This reflects the underlying sustained demand in the region's serviced residence industry.
"Barring a sharp economic downturn, we expect our residences to continue to perform better than last year. This resilience is due to our success in increasing our guests' average length of stay, which has improved our income stability and sales efficiency. There is also a general flight to quality properties offered by the group, especially in cities facing security uncertainties."
Mr Kee expects lower earnings contribution from the retail sector in the second half of the year due to the completed divestment of the Orchard Point mall and planned divestment of some of its other shopping centres.
He added that the group is at an advanced stage of negotiations to divest Junction 8 and Funan The IT Mall.
The company's exceptional items saw a loss of S$3.5 million, due to the S$10.5 million loss in the sale of its interest in the golf club, which was off-set by a S$7 million gain from the sale of the Orchard Point retail podium.
Mr Kee said that the disposal of the golf club business will reduce the group's operating costs by S$5 million annually, as the project had been a persistent drain on its profitability.
Mr Kee added that the S$0.5 to S$0.6 billion proceeds from its achieved and planned divestments this year would be used to retire debt and fund future acquisitions. These include funding the company's expansion into the higher yielding serviced residence markets in Europe and North Asia.
"We are looking to acquire operational portfolios. The planned expansion into higher yielding markets from the second half of this year will improve our return on equity. The lower volatility of the mature European markets will also provide a stable replacement for our retail sector earnings, as we divest our non- core retail properties," he said.
The Ascott Group, which is today the Asia Pacific's largest serviced residence company, aims to grow into a global industry leader with 15,000 serviced residence units by 2005, compared to its current 6,000 units.
Mr Kee added that the group will increase its participation in the fast growing serviced residence markets of North Asia.
In China, with the opening of the 272-unit The Ascott Beijing this month and 259-unit Somerset Fortune Garden, Beijing in September, the group will have 1,450 units by the end of the year, making it one of the largest serviced residence operators in the country.
"We have S$343 million of serviced residence assets in China, which accounts for 25 per cent of our total serviced residence base. We expect to benefit substantially from the country's anticipated economic expansion, arising from its entry to the World Trade Organisation, government policies to boost the economy and build infrastructure, and hosting of the 2008 Olympics," said Mr Kee.
"Our serviced residences in China are already performing strongly. Demand for high end apartments is vigorous in Beijing and Shanghai, where we have focused our investments."
In Shanghai, the group operates three serviced residences -- the 248- unit The Ascott Pudong, 334-unit Somerset Grand Shanghai and 167-unit Somerset Xu Hui. It also manages the 169-unit Somerset Olympic Tower in Tianjin.
Brand Development and Marketing
Mr Kee added that the company had recently launched its region-wide brand rationalisation and promotion exercise to develop its The Ascott and Somerset brands into global brands.
In line with its strategy to leverage its brand strength to grow its portfolio of managed residences, the group has clinched three management contracts for projects in Melbourne, Singapore and Ho Chi Minh City.
It has also expanded its global marketing network and installed the industry's first real-time on-line reservations system in the Asia Pacific.
Synergy and Cost Reduction
Mr Kee said that ongoing merger synergy and cost reduction efforts this year are expected to result in S$7 million savings. These are being achieved through clustering its operations, bulk procurement and economies of scale, and lowering corporate office costs.
The group's earnings per share was 0.26 cents and net tangible asset per share was 82 cents. No interim dividend was recommended for the period.
Ida Lim, Vice President
Investor Relations & Corporate Communications
Tel: 65867-230 Hp: 9-6288-339 Fax: 62272-220
Dennis Foo, Chief Corporate Officer
Tel: (65) 5867-181 Hp: (65) 9674-4353 Fax: (65) 5867-202