Ann: ADDRESS: MCK: MCK - FY2011 Chairman's Re

• Release Date: 22/02/12 18:46
• Summary: ADDRESS: MCK: MCK - FY2011 Chairman's Review
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MCK
22/02/2012 16:46
ADDRESS

REL: 1646 HRS Millennium & Copthorne Hotels New Zealand Limited

ADDRESS: MCK: MCK - FY2011 Chairman's Review

CHAIRMAN'S REVIEW

--Financial Performance & Financial Position

The Board is pleased to advise shareholders that for the year ended 31
December 2011, Millennium & Copthorne Hotels New Zealand Limited ("MCHNZ")
reported a profit attributable to owners of the parent of $20.6 million
(2010: $10.1 million loss).  Given the earthquakes experienced in Canterbury
during 2011 and its effects on trading generally, this is a very creditable
result.

Clearly, the most significant events of 2011 were the Canterbury Earthquakes
in February and the 2011 Rugby World Cup in September and October.  The
earthquakes and their related aftershocks have had and will continue to have
a significant impact on the Company's operations in Christchurch and other
parts of the South Island although the negative effects were partially offset
by the positive impact of the Rugby World Cup in Auckland and Wellington in
particular.

Although revenue and other income for the year decreased to $111.9 million
(2010: $115.9 million), MCHNZ's profit before tax, non-controlling interests
and associates showed growth from the same period in 2010 and increased to
$28.9 million (2010: $14.9 million) reflecting a number of one-off gains,
many of which related to the earthquake as well as increased productivity
during 2011.  CDL Investments New Zealand Limited increased its after-tax
profit by $0.9 million to $3.8 million reflecting increased sales activity
and a more positive New Zealand property market.  First Sponsor Capital
Limited made a positive contribution to MCHNZ's profit providing $4.6
million.

Earnings per share reflected the return to profit and the one-off gains at
5.90 cents per share (2010: -2.90 cents per share).

Shareholders' funds excluding non-controlling interests as at 31 December
2011 totaled $419.1 million (2010: $412.6 million) with total assets at
$660.3 million (2010: $630.8 million). Net asset backing (with land and
building revaluations and before distributions) as at 31 December 2011 was
119.9 cents per share (2010: 118.0 cents per share).

--Effect of the 2011 Canterbury Earthquakes

In the 2011 Interim Report, we set out some of the effects of the Canterbury
Earthquakes.  By way of update:

? Reservations for Millennium Hotel Christchurch and Copthorne Hotel
Christchurch will not be accepted until 2013 at the earliest.  Both hotels
remain in the 'red zone' and access remains restricted given the ongoing
aftershocks.  Repair works have not begun on either hotel as a result but
both hotels have sufficient business interruption insurance to see them
through 2012.

?  In November 2011, a confidential settlement was reached with the insurers
and the owners / landlord of the Copthorne Hotel Christchurch City (Durham
Street) for the damage / loss to this property.  The lease on the hotel was
terminated and the hotel was demolished.  The Company has no ongoing
liability for this hotel as a result.  The Company's business interruption
claim from the February 2011 earthquake is still to be settled;

? Other business interruption claims for the February 2011 earthquake remain
ongoing and discussions are continuing with the insurers.  A confidential
settlement of the claims relating to the September 2010 claims was concluded
in respect of the Company's Christchurch hotels.

As stated in the 2011 Interim Report, Insurance for the 2011/12 period was
renewed for the New Zealand hotels, albeit at a significantly higher premium
reflecting the current risk profile and pricing in the New Zealand market.
The Company has had the benefit of being able to access the Millennium &
Copthorne Hotels' global insurance policies and its insurers and this has
been beneficial in the handling and settling of claims.

As detailed in the financial statements, the cost to the Company in terms of
insurance excesses and other related expenditure in 2011 was approximately
$1.1 million.  Provisions of $2.4 million were made in relation to the 2011
earthquakes and their after effects during the year.

On behalf of the Board, I do wish to extend sincere thanks to our staff, both
past and present in Christchurch, and to our Operations team for their
diligence during this extraordinary period.

--New Zealand Hotel Operations

Revenue for the New Zealand hotel operations (16 owned / leased / operated
hotels excluding 12 franchised properties) for the period under review was
$97.4 million (2010: $103.6 million).  Hotel occupancy for the period was
down to 64.3% across the Group (2010: 66.3%).

The Company's hotels in Auckland and Wellington in particular benefitted from
the 2011 Rugby World Cup held in September and October enjoying solid
occupancies and achieving good room rates and yields.  However, the ongoing
effects of the February 2011 earthquakes combined with soft visitor numbers
from historically strong markets such as the UK / Europe and North America
did affect the hotels in the Bay of Islands, Rotorua and Queenstown.  Asian
markets are starting to show some signs of improvement and we are focusing
our resources on securing inbound business, particularly from China, which is
an increasing market.

--CDL Investments New Zealand Limited ("CDLI")

CDLI announced an operating profit after tax for the year ended 31 December
2011 of $3.8 million (2010: $2.9 million) and reported an increase in its
section sales from 54 in 2010 to 77 in 2011.  CDLI is also expecting to
report increased sales in 2012 reflecting a more positive property market.
CDLI, along with its joint venture partners, successfully completed a private
plan charge for land located in Christchurch which is to be developed in the
near future and which was unaffected by the recent earthquakes.

CDLI has declared an ordinary dividend of 1.4 cents per share. MCHNZ's stake
in CDLI is currently 66.28%.

--Offshore Operations - Australia & China

In Australia, short term leasing of the units at the Zenith Residences
continued during the year with occupancy of over 95% recorded.  While
marketing of the units has continued, no additional sales were made in 2011.

The Company's 34% associate, First Sponsor Capital Limited (FSCL), reported a
profit of US$ 9.5 million for the financial year ended 31 December 2011.  The
Company's share of the profit is NZ $4.6 million.

As at 12 February 2012, 711 out of 726 residential units of the Chengdu
Cityspring project have been sold either under sale and purchase or option
agreements. 98.6% of the sales proceeds have been collected for those
residential units sold under sale and purchase agreements. In addition, 527
of the 709 commercial units launched for sale in July 2011 have been sold
either under sale and purchase or option agreements with 65.1% of the sales
proceeds having been collected. Revenue and profit recognition requirement
for the residential units is expected to be met in 2012.  Proceeds from the
residential and commercial sales will finance the development of a 195-room
hotel, M Hotel Chengdu, which will be franchised by the Millennium &
Copthorne Group.

In November 2011, FSCL successfully tendered for two parcels of land in
Chengdu.  Earlier in 2011, directors from MCK and Millennium & Copthorne
Hotels plc visited the area and met with local government officials.  The
total area of land is approximately 270,500 square metres and will be able to
be developed as residential and commercial developments including a hotel and
convention centre.

In November 2011, the Company announced that it had increased its investment
in FSCL by an additional USD 30 million taking its stake back to 34%.  The
additional capital was provided as part of a capital call to allow FSCL to
purchase the aforesaid Chengdu land.  A waiver was obtained from the NZX in
order to proceed with the increase.

In 2011, after regaining control of its property operations in the Guangdong
province, FSCL commenced with a restructuring of its asset portfolio via the
disposal of some land parcels in Qingyuan and Huizhou, and buying out of the
minority shareholder of another land parcel in Dongguan.

--Dividend Announcement

The Company has resolved to pay a fully imputed ordinary dividend of 1.2
cents per share payable on 11 May 2012 (2010: 1.2 cents per share).  The
record date will be 4 May 2012.

--Outlook

With the ongoing issues in Christchurch and the number of international
visitors still weak due to global economic conditions, 2012 will be another
challenging year for different reasons.  That said, cost management at the
hotel operational level is currently good and the Company's other business
units are expected to be profitable.  2012 will also see the profit from the
Chengdu Cityspring development being recognized in the first half of 2012
which will also benefit the Company.

The Board and Management are therefore cautiously optimistic about the
Company's prospects over the coming year.

--Management and staff

On behalf of the Board, I thank the Company's management and staff for their
work and commitment during what has been a challenging and extraordinary
year.

Wong Hong Ren
Chairman
22 February 2012
End CA:00219874 For:MCK    Type:ADDRESS    Time:2012-02-22 16:46:13