Hong Kong-headquartered hotel group Mandarin Oriental saw pre-tax losses widen to $699 million ($45.4 million in 2019) on the back of the Covid-19 pandemic and the drop in value of one of its developments.
The Causeway Bay site in Hong Kong, which used to house The Excelsior Hotel, was valued at some $2.5 billion, net of future construction costs, a decrease of $475 million during the year. Excluding this adjustment, the company's pre-tax loss was $185.8 million versus a profit of $71 million in 2019.
The company was forced to close many of its hotels during the year as countries shut their boarders in response to the pandemic. As a result, revenue declined 68% to $183.7 million.
At the same time, costs were reduced thanks to a variety of government schemes. The group's share of payroll across owned hotels and the corporate organisation — a major component of costs in the business — was reduced by around 40% through a combination of furlough, unpaid leave, reduced pay and redundancies. Substantial reductions in non-payroll costs were also achieved.
"2020 was an extremely difficult year with a significant reduction in global travel. Management actions, together with financial support by governments in some markets, led to lower losses in the second half of the year,” Ben Keswick, the company’s chairman said.
There’s an expectation at the company that in the short term, things will continue to be tough.
“Trading conditions remain extremely challenging, and an underlying loss is expected for the first half of 2021. The outlook for the full year remains highly uncertain, and will be dependent on the removal of barriers to travel and continuation of government support measures,” Keswick said.
Net debt was $506 million at the end of December 2020, versus $300 million at the end of the previous year. Gearing as a percentage of adjusted shareholders' funds was 10%.
Mandarin Oriental now has 34 hotels in its portfolio after taking over the management of the Emirates Palace in Abu Dhabi at the beginning of 2020 and the Al Faisaliah Hotel in Riyadh in March 2021. It has a further 20 announced hotel projects and two standalone residences expected to open in the next five years. In October, Mandarin Oriental signed a strategic alliance with Oberoi.
Insight
Another day another set of miserable annual results. For Mandarin Oriental it was the same story we’ve seen elsewhere in the industry and it sounds like it expects things to stay tough for 2021. Where others have perhaps sounded a note of optimism, the company’s chairman said that the operating environment remains “extremely challenging”. Really it all depends on how fast countries can open up. Those brands with portfolios in countries where things get back to normal quicker will be in a much more fortunate position.