Management Discussion and Analysis Business Review Review of Group Results Non-Accounting Our Group comprises three key divisions – hotels, commercial properties and clubs and Performance services. These divisions are described in more detail in the following review. Indicators 2014 vs Key non-accounting HK$m 2014 2013 2013 performance indicators Revenue relevant to the Group’s hotel business include: Hotels 4,260 4,044 5% Average Room Rate (HK$) : Commercial Properties 901 806 12% Total Rooms Revenue Clubs and Services 677 658 3% Rooms Sold 5,838 5,508 6% Rooms Revenue per Available Room (“RevPAR”) (HK$) : EBITDA Total Rooms Revenue Hotels 818 649 26% Rooms Available Commercial Properties 582 521 12% Occupancy Rate: Rooms Sold Clubs and Services 128 136 (6%) x 100% Rooms Available 1,528 1,306 17% We are pleased to report that the Group’s attributable to shareholders for the year turnover continued to grow in 2014 and ended 31 December 2014 increased by amounted to HK$5,838 million, representing 57% to HK$804 million. an increase of 6% over 2013. The EBITDA The Board has recommended a final for the year of HK$1,528 million, an increase dividend payable on 19 June 2015 of of 17% over the previous year, reflects the 18HK cents per share. Together with the improved management of costs relative to 2014 interim dividend of 5HK cents per the increase in revenue. Profit attributable share paid on 31 October 2014, the total to shareholders amounted to HK$1,146 dividend in respect of the 2014 financial million, after including property revaluation year will be 23HK cents per share, an gains, net of tax and non-controlling increase of 44% over 2013. interests. The Group’s underlying profit 24 The Hongkong and Shanghai Hotels, Limited Operating Statistics Peninsula Hotels Occupancy % ARR (HK$) RevPAR (HK$) 2014 2013 2014 2013 2014 2013 Hong Kong (Note 1) 75 72 5,144 5,170 3,870 3,731 Other Asia (excluding Hong Kong) 65 66 2,146 2,065 1,390 1,361 United States of America and Europe (Note 2) 74 74 5,471 4,858 4,059 3,573 Average 68 68 3,454 3,087 2,361 2,105 Notes: 1. The renovation works in The Peninsula Hong Kong were completed in two phases, resulting in 135 rooms being removed from saleable inventory from January to September 2012, followed by 165 rooms from September 2012 to May 2013. The occupancy and RevPAR are based on the number of rooms not being renovated. 2. The Peninsula Paris was opened on 1 August 2014, although the full inventory of 200 rooms was not available from that date. The average number of availabe rooms per day for the 5 months to 31 December 2014 was 171 and this number has been used for the calculation of occupancy and RevPAR. 3. Occupancy rates, average room rates and RevPAR are weighted averages for the hotels in each grouping. 4. The average room rates and RevPAR include undistributed service charge, which is levied at 10% in Hong Kong and at 15% in China and Japan. Consolidated Hotel Revenue by Geographical Segment (HK$m) Consolidated Hotel Revenue Consolidated Hotel Revenue by Geographical Segment by Nature 2010 2011 2012 2013 2014 (HK$m) (HK$m) Hong Kong 1,119 1,217 1,092 1,268 1,460 4,500 4,500 4,000 4,000 Other Asia 1,547 1,551 1,758 1,685 1,627 3,500 3,500 3,000 3,000 USA 910 998 1,035 1,091 1,173 2,500 2,500 2,000 2,000 3,576 3,766 3,885 4,044 4,260 1,500 1,500 1,000 1,000 500 500 0 0 10 11 12 13 14 10 11 12 13 14 Consolidated Hotel Revenue by Nature (HK$m) Hong Kong Rooms 2010 2011 2012 2013 2014 Other Asia Food & Beverage Rooms 1,549 1,642 1,637 1,768 1,889 USA Others Food & Beverage 1,123 1,175 1,232 1,218 1,239 Others 904 949 1,016 1,058 1,132 Consolidated Hotel EBITDA Margin 3,576 3,766 3,885 4,044 4,260 (HK$m) (%) 1,000 25 800 20 Consolidated Hotel EBITDA (HK$m) 600 15 2010 2011 2012 2013 2014 400 10 EBITDA (HK$m) 604 605 596 649 818 200 5 EBITDA Margin 17% 16% 15% 16% 19% 0 0 10 11 12 13 14 EBITDA (HK$m) EBITDA Margin (%) Annual Report 2014 25 Management Discussion Business Review and Analysis Commercial Properties Rental Revenue from Rental Revenue from Rental Revenue from Commercial Properties by Geographical Segment (HK$m) Commercial Properties Commercial Properties by Geographical Segment by Nature 2010 2011 2012 2013 2014 (HK$m) (HK$m) Hong Kong 646 704 694 743 810 1,000 1,000 Other Asia 42 39 39 36 36 800 800 Europe – – – 27 55 600 600 688 743 733 806 901 400 400 200 200 Rental Revenue from Commercial Properties by Nature (HK$m) 0 0 10 11 12 13 14 10 11 12 13 14 2010 2011 2012 2013 2014 Hong Kong Residential Residential 392 410 390 415 445 Other Asia Office Office 66 71 67 93 124 Europe Commercial Commercial 230 262 276 298 332 Commercial Properties 688 743 733 806 901 EBITDA Margin (HK$m) (%) 600 80 500 75 Commercial Properties EBITDA 2010 2011 2012 2013 2014 400 70 300 65 EBITDA (HK$m) 450 493 474 521 582 200 60 EBITDA Margin 65% 66% 65% 65% 65% 100 55 0 50 10 11 12 13 14 EBITDA (HK$m) EBITDA Margin (%) Clubs and Services Revenue from Revenue from Clubs and Services by Geographical Segment (HK$m) Clubs and Services Clubs and Services by Geographical Segment EBITDA 2010 2011 2012 2013 2014 Margin (HK$m) (HK$m) (%) Hong Kong 338 393 438 494 505 700 140 35 Other Asia 58 60 66 65 55 600 120 30 USA 47 47 56 99 117 500 100 25 400 80 20 443 500 560 658 677 300 60 15 200 40 10 100 20 5 Clubs and Services EBITDA 0 0 0 10 11 12 13 14 10 11 12 13 14 2010 2011 2012 2013 2014 Hong Kong EBITDA (HK$m) EBITDA (HK$m) 89 113 131 136 128 Other Asia EBITDA Margin (%) EBITDA Margin 20% 23% 23% 21% 19% USA 26 The Hongkong and Shanghai Hotels, Limited otels 2014 vs 2014 2013 2013 Revenue (HK$m) Revenue (HK$m) Consolidated hotels The Peninsula Hong Kong 1,360 1,192 14% The Peninsula Beijing 411 424 (3%) The Peninsula New York 674 592 14% The Peninsula Chicago 499 499 0% The Peninsula Tokyo 756 734 3% The Peninsula Bangkok 181 235 (23%) The Peninsula Manila 279 292 (4%) Management fees income 100 76 32% 4,260 4,044 5% Non-consolidated hotels The Peninsula Shanghai 595 553 8% The Peninsula Beverly Hills 581 508 14% The Peninsula Paris 225 – n/a 1,401 1,061 32% was a pleasing year for the Group’s hotels division. With the opening of The Peninsula Paris, our first European property, on 1 August 2014, our portfolio now comprises ten hotels situated in Asia (6), the United States of America (3) and Europe (1). During the year, our existing portfolio of hotels achieved revenue growth of 5% over 2013. The largest increases came from The Peninsula hotels in Hong Kong and New York. The Peninsula Tokyo achieved revenue growth of 12% in its base currency, although the depreciation of the Japanese yen reduced that growth to 3% in Hong Kong dollar terms. The Peninsula Bangkok recorded a reduction in revenue due to the continuing political uncertainty in Thailand. Our hotels continue to enjoy a strong market position in the midst of a competitive operating environment. Guest loyalty, evidenced by the high levels of repeat patronage, remains a core strength of the Group. Annual Report 2014 27 Management Discussion Business Review and Analysis The Peninsula Hong Kong The Peninsula Hong Kong is our flagship a pleasing result in light of the increased The Peninsula property for the Group and remains the number of rooms available compared to leader in average room rates among our 2013 when we completed our renovation. Hong Kong benchmarking competitive set. Occupancy The newly renovated rooms and in-room Revenue levels were slightly affected in the last technology continue to be very favourably HK$1,360m quarter because of the impact of the received by guests. Food and beverage civil protests, which led to a number of outlets and the spa performed well due +14% cancellations from overseas visitors but the to the increased number of guests in the impact on our hotel was relatively minor. hotel. The Peninsula Hong Kong Arcade Room Revenue We firmly believe that Hong Kong remains and Office Tower were fully occupied HK$420m a healthy and desirable destination for throughout the year, with leases being business and we remain positive for 2015. renewed on favourable terms. The complex +27% gross operating margin, being inclusive of Our top three market segments continue both hotel and retail trading, improved by Available Rooms to be the United States (“US”), Japan and four percentage points and reflects the mainland China. Whilst Japanese visitor beneficial impact of stronger pricing having arrivals to Hong Kong recorded a slight +23% been achieved. slowdown due to the weakening of the Occupancy yen, the US and Chinese mainland markets In 2014 we started a new art initiative, Love remained strong and we saw an increasing Art at the Peninsula, which created a high +3pp number of visitors from emerging markets level of awareness for our brand amongst such as Russia.