Hongkong and Shanghai Hotels : 04 Aug 2021 - 2021 Interim Results

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THE HONGKONG AND SHANGHAI HOTELS, LIMITED

香港上海大酒店有限公司

(Incorporated in Hong Kong with limited liability) (Stock Code: 00045) website: www.hshgroup.com

2021 Interim Results

HIGHLIGHTS

• As forewarned in the company's 2020 annual report, the group's results for the six months ended 30 June 2021 continued to be significantly negatively affected by the COVID-19 coronavirus pandemic
• The group's revenue and combined revenue* declined by 5% and 1% to HK$1,264 million and HK$1,420 million respectively
• With significant cost savings, the group's EBITDA and combined EBITDA* amounted to HK$6 million and HK$35 million respectively compared to EBITDA losses of HK$95 million and HK$114 million in the same period last year
• Underlying loss** amounted to HK$375 million (2020: HK$499 million)
• Loss attributable to shareholders amounted to HK$452 million (2020: HK$1,197 million),
  inclusive of net property revaluation deficit of HK$77 million (2020: revaluation deficit of HK$365 million and impairment provisions of HK$329 million)
• Loss per share was HK$0.27 (2020: HK$0.73)
• The group's financial position as at 30 June 2021 remained strong with shareholders' funds amounting to HK$36,459 million (31 December 2020: HK$36,844 million) and the group's net external debt to total assets remained moderate at 22% (31 December 2020: 20%)
• Given the current difficult environment and results, the Board felt it was prudent not to declare an interim dividend

• Combined revenue/combined EBITDA is calculated by including the group's effective share of revenue/EBITDA of associates and joint venture

• Underlying loss is calculated by excluding the post-tax effects of unrealised property revaluation movements and impairment provisions

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THE HONGKONG AND SHANGHAI HOTELS, LIMITED 香港上海大酒店有限公司

FINANCIAL HIGHLIGHTS

	For the	For the
	six months	six months
	ended	ended
	30 June	30 June	2021 vs
	2021	2020	2020
PROFIT OR LOSS HIGHLIGHTS (HK$m)	1,420	1,432	(1%)
Combined revenue ^
Revenue	1,264	1,334	(5%)
Combined EBITDA ^	35	(114)	n/a
EBITDA	6	(95)	n/a
Operating loss	(244)	(378)	35%
Loss attributable to shareholders	(452)	(1,197)	62%
Loss per share (HK$)	(0.27)	(0.73)	63%
Underlying loss *	(375)	(499)	25%
Interim dividend	zero	zero	n/a
Interim dividend per share (HK cents)	zero	zero	n/a
Interim dividend cover (times) **	n/a	n/a	n/a
Interest cover (times)	n/a	n/a	n/a
Cash interest cover (times)	n/a	n/a	n/a
Weighted average gross interest rate on bank borrowings	1.5%	2.1%	(0.6pp)
	As at	As at
	30 June 31 December
	2021	2020
CONSOLIDATED STATEMENT OF FINANCIAL
POSITION (HK$m)	54,573	53,679	2%
Total assets
Net assets attributable to shareholders	36,459	36,844	(1%)
Adjusted net assets attributable to shareholders #	40,371	40,607	(1%)
Net assets per share (HK$)	22.11	22.34	(1%)
Adjusted net assets per share (HK$) #	24.48	24.63	(1%)
Net external borrowings	11,942	10,662	12%
Funds from operations to net external debt ##	(1%)	(4%)	3pp
Net external debt to equity attributable to shareholders	33%	29%	4pp
Net external debt to total assets	22%	20%	2pp
		For the
	For the
	six months	six months
	ended	ended
	30 June	30 June
	2021	2020
CONDENSED CONSOLIDATED STATEMENT OF
CASH FLOWS (HK$m)
Net cash used in operating activities before net	(12)
working capital movement	(224)	95%
Net cash interest paid	(83)	(69)	(20%)
Capital expenditure on existing assets	(150)	(174)	14%
Capital expenditure on new projects and investments	(1,092)	(844)	(29%)
SHARE INFORMATION (HK$)	8.50	8.97
Highest share price
Lowest share price	6.71	5.99
Period end closing share price	8.17	7.01

• Including the group's effective share of revenue/EBITDA of associates and joint venture

• Underlying loss is calculated by excluding the post-tax effects of unrealised property revaluation movements and impairment provisions

• Interim dividend cover is calculated as underlying profit divided by interim dividend
  Interest cover is calculated based on operating profit divided by net financing charges excluding interest on lease liabilities Cash interest cover is calculated based on EBITDA less lease payments divided by net interest on bank loans paid

• Adjusted net assets attributable to shareholders and adjusted net assets per share are calculated by reference to the revaluation of the group's hotels and golf courses which is conducted annually by independent property valuers

• Being annualised EBITDA less tax paid and net cash interest paid as a percentage of net external debt pp Denotes percentage points

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THE HONGKONG AND SHANGHAI HOTELS, LIMITED

香港上海大酒店有限公司

CEO's Review

It has been over two years since the start of the Hong Kong protests, which significantly adversely impacted our group's operating results, to be followed by the COVID-19 crisis starting in early 2020, resulting in a devastating impact on our global operations. Our previously healthy EBITDA of HK$1,680 million in 2018 was reduced to HK$1,390 million in 2019 and to an EBITDA loss of HK$61 million in 2020.

The first half of 2021 remained a most challenging time for our group, with many of our operations continuing to be severely impacted by the global COVID-19 pandemic. The bulk of our group's earnings are usually derived from our home market of Hong Kong and, whilst infection rates remained low here, the stringent social distancing rules and ban on international travel imposed by the Government due to COVID-19 concerns continued to impact not only The Peninsula Hong Kong, but also the Peak Complex and our residential leasing business. Elsewhere, we have seen a strong recovery in our two Chinese mainland hotels in Beijing and Shanghai, and our US hotels have started to recover with the relaxing of social distancing restrictions. Business remains very weak at our hotels in Paris, Tokyo, Bangkok and Manila.

At a time when our operational cashflows have been significantly depleted from normal levels, we are seeking to complete the development and construction of our two major Peninsula hotel projects in London and Istanbul, as well as the Peak Tram upgrade project. These projects have also been affected by COVID-19 related impacts on the construction workforce and the supply chain, but we are working hard to deliver these projects whilst containing the timing and cost impacts of the delays as much as possible. We have committed financing in place to cover the entirety of these projects as well as provide a significant buffer against any future operating cash burn. Unfortunately, work has stopped on The Peninsula Yangon project, and we are keeping the situation under continuous review.

Our priority has been to implement significant cost savings while maintaining appropriate operational and service levels, as well as looking after the well-being of our staff. As a result of the actions that we have taken to minimise our operating cash outflows and bolster liquidity, our group's net cash outflow from operating activities for the six months ended 30 June 2021 was significantly reduced to HK$12 million and we believe our financial resources are currently sufficient to meet the group's funding requirements for at least the next three to four years.

The group recorded a 5% decline in consolidated revenue during the first half. This was principally a result of decreased revenue from our commercial properties division due to a decline in the demand in the luxury residential market impacting The Repulse Bay, as well as rental concessions and lack of visitor arrivals affecting the Peak Tower. Despite seeing some recovery, the hotels division continued to be impacted by the lack of international travel and various social distancing measures imposed on the food and beverage sector. These were somewhat offset by stronger performance of the clubs and services division.

Our financial results for the first six months of 2021 were in line with our expectations, recovering to a combined EBITDA of HK$35 million (as compared to a combined EBITDA loss of HK$114 million in the first half of 2020). The group's cost saving efforts have resulted in our consolidated operating costs for the first six months of the year reducing from HK$2,181 million in 2019, to HK$1,429 million in 2020 and HK$1,258 million in 2021. Due to these cost saving efforts as well as improvements in operating performance in some markets, the group's underlying loss reduced by 25% to HK$375 million. The group's loss attributable to shareholders for the period amounted to HK$452 million compared to a loss of HK$1,197 million in the same period last year.

Although there is a high degree of uncertainty in the near term, our long-term philosophies and values remain steadfast. Our vision is: to develop, own and operate a small number of the highest quality hotels and luxury properties which we believe are considered to be amongst the finest in the world. By taking a long-term view and by maintaining and enhancing the quality of our assets and operations, we seek to create significant value for our shareholders from the long-term appreciation in the capital value of our properties, as well as from the increasing operating yield as each property grows its income over time.

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THE HONGKONG AND SHANGHAI HOTELS, LIMITED

香港上海大酒店有限公司

Business Performance

Our Group comprises three key divisions - hotels, commercial properties and clubs and services. These divisions are described in more detail in the following review.

Hotels Division

Hotels	Revenue	Variance	In Local
Consolidated hotels	HK$m	In HK$	Currency
The Peninsula Hong Kong	306	+8%		+8%
The Peninsula Beijing	111	+85%		+69%
The Peninsula New York	71	-49%	-49%
The Peninsula Chicago	142	+63%		+63%
The Peninsula Tokyo	141	-15%	-15%
The Peninsula Bangkok	12	-76%	-77%
The Peninsula Manila	13	-65%	-66%
Non-consolidated hotels
The Peninsula Shanghai	215	+107%		+89%
The Peninsula Beverly Hills	189	+32%		+32%
The Peninsula Paris	49	-43%	-47%
The Peninsula Hong Kong
The Peninsula Hong Kong
Revenue	HK$306m	+8%
Occupancy		+16pp
Average Room Rate		-19%
RevPAR		+79%

The Hong Kong hospitality market continued to be negatively affected by stringent travel restrictions and border closures which have been implemented since March 2020. In the first half of the year, The Peninsula Hong Kong achieved improved revenue, occupancy and RevPAR compared to the same period last year. This was the result of a number of staycation offers and marketing promotions including "Journey the World: New Encounters" to attract the local market and offer unique experiences for local residents. To encourage guests to visit The Lobby, we organised spectacular displays in collaboration with various luxury brands including Aston Martin and Louis Vuitton.

Food and beverage revenue improved compared to last year but continues to be limited by the complex social distancing measures imposed by the Hong Kong Government, which led to restricted dining hours and the cancellation of many large functions and weddings. However, we believe there is strong pent-up demand and we are optimistic that food and beverage business will return as social distancing measures are relaxed and vaccination rates improve. As of 30 June 2021, our banqueting team achieved the category of "Zone D" which means that we are able to host large events for up to 180 people and we are optimistic that banqueting revenue will return. We were pleased that Gaddi's was awarded one Michelin star for the second consecutive year, while Spring Moon garnered one Michelin star for the fifth year in a row, which is a testament to the hard work and expertise of our talented culinary team.

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THE HONGKONG AND SHANGHAI HOTELS, LIMITED

香港上海大酒店有限公司

The Peninsula Office Tower was 94% occupied in the first half of 2021, and the immediate outlook is stable. The Peninsula Arcade occupancy was 77% but we are optimistic for the second half with one of our luxury anchor tenants expanding their space and a number of new tenants signing contracts. The ongoing renovation of The Peninsula Arcade basement, which will create a high- end lifestyle retail area, is due to be completed in 2021. The new basement will include an eclectic mix of interesting lifestyle options including a sushi bar, a men's grooming salon, high-end audio equipment store and a new and expanded The Peninsula Boutique & Café which opened in May 2021 and has received positive media coverage and strong demand.

We continued to support the local community and charities by partnering with Impact HK and offering a "one meal for one meal" programme to support the homeless and needy in Hong Kong.

The Peninsula Shanghai

The Peninsula Shanghai

Revenue	RMB179m	+89%
Occupancy		+32pp
Average Room Rate		+14%
RevPAR		+193%

The Peninsula Shanghai reported pleasing results for the first half of the year, following a rapid recovery from some local pandemic cases which were reported in January, and business levels returned to normal in the second quarter. The hotel remains the market leader in average room rates in the city and was number one in RevPAR for the second quarter. Occupancy and revenue improved significantly compared to the same period last year.

International tourist arrivals to the Chinese mainland are restricted and therefore the domestic market remained our largest revenue driver. Catering business was slow in the first quarter with many events being cancelled or postponed due to several COVID cases reported in the Huangpu area, but we are pleased to see robust demand returning in the second quarter for events and groups. We held several collaborations with luxury brands and enjoyed good market share for events despite intense competition in the city. Demand for suites was healthy although rates are still lower than their pre-pandemic levels. The Peninsula Shanghai remains the only hotel in the Chinese mainland to have two restaurants with Michelin stars.

The Peninsula Arcade was 93% occupied for the first half.

The group owns a 50% interest in The Peninsula Shanghai Complex which comprises a hotel, a shopping arcade and a residential tower of 39 apartments. As at 30 June 2021, a total of 31 units have been sold.

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