Group turnover increased by 23.2% to $1,197.3 million (1999: $971.7 million) and after-tax profits before extraordinary items grew by 20.3% to $157.1 million (1999:$130.6 million) of which $124 million relates to the property sector. The higher turnover resulted mainly from contributions from the newly-acquired hotels. The increase in after-tax profits is due to better contributions from the property as well as the hotel sector.
Earnings per share before extraordinary items increased by 20.3% to 19.6 cents (1999: 16.3 cents). Net tangible assets per share computed on the basis of book value increased by 63 cents to $4.79 (1999: $4.16).
Review of the results of the company and its principal subsidiaries
Property
The residential property market consolidated in the first half of the year with relatively fewer new launches and transactions. The uncertain regional outlook and the concern of potential rising interest rates kept most prospective buyers at bay during this period, although most appeared to be waiting in the wings for the appropriate time to make a commitment. The government's decision to release land for 9000 units (inclusive of executive condominiums) under its Land Sales programme for this year did not help the situation. Although prices did not trend upward significantly, some developers proceeded to launch new projects at prices tied down primarily to levels dictated by stock left unsold from the time of the Asian financial crisis.
During the period under review, the Group launched the last phase of Summerhill and Faber Crest and phase 2 of Thomson 800. It also launched its first highly intelligent new generation i-home project known as The Equatorial.
As a longer term strategy, the Group continued to replenish its landbank with the acquisition of the 24,172 square metre Tat Lee Court site through enbloc purchase and a 20,758 square metre site at Ang Mo Kio Avenue 1 slated for landed housing development.
The office and retail sector has shown positive signs of recovery. The Group's net rental income registered a drop on account of the partial divestment of Lot 1 Shoppers' Mall last year. The industrial sector was relatively flat with very slight recovery in the rental and capital value in the first six months of this year.
Hotels
As a result of the recent restructuring exercise to streamline the ownership structure of the hotel group, CDL Hotels International Limited ("CDL Hotels") agreed to transfer to CDL or its wholly owned subsidiaries 147,785,025 shares in Millennium & Copthorne Hotels plc ("M&C") representing 52.4% of the issued share capital of M&C for a total consideration of approximately S$1,359 million. As a result of the transfer, the Group's effective interest in M&C increased from 28.4% to 52.4% with effect from 1 January 2000.
The financial performance of the M&C Group for the first six months of the year reflects a well-managed business benefiting from the ongoing economic recovery throughout Asia, with the exception of Indonesia, and from the strength of the economies of the United Kingdom and the USA. As a result of acquisition and organic growth, its operating profit increased by 116% to £76.4 million or S$205.7 million (1999: £35.4 million or S$97.5 million) producing pre-tax profit of £53.6 million or S$144.2 million (1999: £28.5 million or S$78.5 million). Net profit after tax and minority interests was £38 million or S$102.3 million (1999: £20.1 million or S$55.3 million).
eCommerce
The name CDL Hotels has been changed to CITY e-SOLUTIONS LIMITED to reflect its new Internet strategy with an initial focus on the hospitality business. In future, it will also develop and launch e-commerce business initiatives in other industries. The planned transformation will allow City e-Solutions Limited to leverage its hotel business expertise, capital and technology to provide the hospitality industry with innovative Web-based solutions.
Commentary on current year prospects
Property
The property sector is expected to be more promising in the second half of the year, in line with the strong economic performance. Surplus stock of residential units has been reduced significantly from 25,500 in 1998 to approximately 14,000 currently. The series of interest rate hikes by the U.S. Fed appear to have halted, which has a positive impact on local interest rates and buying sentiment. Already, take-up rates of private property have shown some improvement over the last two months. This trend is expected to continue provided the Government Land Sales programme for 2001 is moderated.
In the past three months, the government unexpectedly announced the limited relaxation in height control on developments as well as the downward revision of the differential land premium. The Group will study its existing portfolio to ascertain how to benefit from the new regulations.
According to government projections under its Concept Plan review for 2001, Singapore's population is anticipated to rise to 5.5 million. This augurs well for the long-term prospects of the property sector, in view of the expected increase in demand for housing and other amenities.
The Group will be launching the remaining units in Thomson 800, The Trevose and The Equatorial. In addition, it is expected to launch Sunshine Plaza, Ipoh Lane redevelopment, the Goldenhill development, Dahlia Park and possibly Burlington Square.
Rental income should benefit from the improving office and retail sectors in the second half. However, as most leases were committed for an average of 3 years and with an annual renewal rate of approximately one-third that was signed during the Asian financial crisis, the impact of an improvement in occupancy and revenue on profit will be gradual.
Hotels
The outlook for the hotel sector remains very positive. The M&C Group believes that it has the potential to increase earnings through internal growth as a result of refurbishments, economies of scale and the new e-commerce initiatives. Taking into account the economic picture identified for each region, as well as its continued integration of the businesses acquired and, recognising that as a Group, its operating performance is weighted towards the second half of the year, the Group is on track to meet its financial target for the year. It will continue to evaluate suitable acquisition opportunities as and when they occur.
eCommerce
City e-Solutions' product offerings in e-solutions will include some of the most essential components in the hospitality business as it enters the Internet age: e-reservations, e-procurement, e-insurance, ASP services and an industry specific portal. The targeted customer base, in addition to the M&C hotel group, will be the vast independent hotels market. Two other regional centres are expected to open shortly in Singapore and London. These regional centres will focus on expanding the Company's business base in Asia and Europe in the near future.
The restructuring exercise signifies yet another move by the Group to adjust itself to meet the continuing challenges of the New Economy environment. The exercise aims to create value for the shareholders of both CDL and CDL Hotels by putting the right piece in the right place at the right price.
As a result of the exercise, the CDL Group has been transformed into three business groups - real estate development and investment, international hotel operation and ownership and Internet investment.
Real estate development and investment will continue to be the Group's predominant core business with the hotel business contributing to its earnings consistency and enhancing the group's overall growth prospects. In general, it can be noted that the real estate content in hotels in Asia is high. Conversion of hotels to other competing uses may bring about substantial enhancements to capital values. Elsewhere in Europe and North America, capital values of hotels can be increased through physical and earnings improvements. As the Group's hotel portfolio is stated at historical costs, the Group is in a position to reap the benefit of capital appreciation whenever the opportunity arises.
The new Internet thrust demonstrates the Company's commitment to forging its traditional brick-and-mortar business in property and hotels with New Economy efficiencies.
Barring any unforeseen circumstances, the CDL Group is expected to continue to perform well.