TIDMMLC
RNS Number : 0656B
Millennium & Copthorne Hotels PLC
30 March 2017
For Immediate Release 30(th) March 2017
Millennium and Copthorne Hotels plc (the "Company")
LEI: 2138003EQ1O4LZ1JNH19
Annual Report and Accounts 2016
In accordance with Listing Rule 9.6.1 copies of the following
documents have been submitted to the UK Listing Authority and will
be available shortly for inspection from the National Storage
Mechanism, which can be accessed at
http://www.morningstar.co.uk/uk/NSM:
-- Annual Report and Accounts for the year ended 31 December 2016; and
-- Notice of Annual General Meeting 2017.
The above documents have also been despatched to shareholders
today and may be viewed online at www.millenniumhotels.com/agm
(Notice of AGM) or by clicking on the investors link at
www.millenniumhotels.com (Annual Report).
The Company's annual general meeting will be held at 10.00am on
Friday 5 May 2017 at the Millennium Hotel London Knightsbridge, 17
Sloane Street, London SW1X 9NU.
A condensed set of the Company's financial statements and
information on important events that have occurred during the
financial year and their impact on the financial statements were
included in our final results announcement on 17 February 2017.
That results announcement should be read in conjunction with the
information set out below which is extracted from the Annual Report
and Accounts 2016 and together they constitute the material
required by Disclosure and Transparency Rule 6.3.5, which is
required to be communicated to the media in full unedited text
through a Regulatory Information Service. This announcement is not
a substitute for reading the full Annual Report and Accounts 2016.
Page and note references in the text below refer to page numbers in
the Annual Report and Accounts 2016. To view the full results
announcement, please visit www.millenniumhotels.com and click on
the investors link.
Principal Risks and Uncertainties
The following has been extracted from page 26 and pages 28 to 30
of the Annual Report and Accounts 2016.
Our Risks
Like any other business, we are subject to a number of risks and
uncertainties, which are influenced by both internal and external
factors, often outside our control. In this section, we describe
the principal risks that could have a material effect on the
Group's ability to deliver against its strategy together with the
controls and activities in place to mitigate such risks.
Risk factors
We provide information on the nature of each principal risk. Not
all potential risks are listed below; some risks are excluded
because the Board considers that they are not material to the Group
as a whole. Our processes aim to provide reasonable, not absolute,
assurance that the risks significant to our business have been
identified and addressed. Additionally, there may be risks that are
not reasonably foreseeable at the date of this report such that the
Group can assess fully their potential impact on the business.
The order in which risks are presented below is not indicative
of the relative potential impact on the Group. The risks may, to
varying degrees, impact the Group's revenues, profits, net assets,
financial and other resources and reputation. It is often difficult
for management to assess with accuracy the likely impact of an
event on reputation, as any damage often may be disproportionate to
the event's actual financial impact.
Management of risk
In general, the geographical spread of the Group provides a
natural hedge against many of the principal risks identified on the
following pages. During the year, the Board promoted and renewed
its focus on risk management through the restructuring of its
oversight and management of risk with the formation of a dedicated
Board Risk Committee. A new dedicated group management risk
committee also was established with the regional operational heads
and functional heads as members and led by the Group Chief
Executive Officer, with assistance from the Internal Audit function
as shown in the diagram below. To support this new structure,
recruitment is underway for a Group Risk Manager who will take the
lead on the Group's programme of workshops to review in detail and
update risk registers where necessary and follow up and support
management in measuring and addressing the identified risks through
appropriate mitigation plans to ensure each risk falls within the
Group's risk appetite.
Day-to-day management of the Group's risks is, and continue to
be, owned by the relevant management team. A member of the
executive management team is assigned responsibility for devising
risk treatment plans to eliminate, minimise or transfer the
relevant risks for which they are responsible, and they undertake
regular reviews of the risk register and progress with risk
management plans.
The Board Risk Committee met three times during 2016 and focused
on embedding the new structure, the recruitment of the new Group
Risk Manager and updating the Group's risk management framework,
shown below.
The Board retains overall responsibility for risk management and
for ensuring that the Group's risks are managed appropriately.
The following is set out in table form in the Annual Report and
Accounts 2016:
Board of Directors Overall accountability for strategic risk
management
Board Risk Committee Responsible for oversight of the Group's
Enterprise Risk Management
Audit Committee Support the oversight & challenge of the
effectiveness of the Group's financial risk management &
mitigating controls with responsibility for the approval of the
Group's principal risks
Group Management and Risk Committee Operational accountability
for management and control of risks and implementation of
mitigation measures
Group Internal Audit Review of effectiveness of internal
controls.
Principal Risks and Uncertainties
Reputation and brand protection
Quality of service delivery and product
Risk and Potential Impact
Consistent delivery of service and product quality is vitally
important to creating and maintaining brand loyalty and value
perception and influencing consumer preference. Lack of investment
in the Group's assets or the removal of a significant number of
rooms from inventory in order to complete needed refurbishment
programmes could have a significant impact on those factors and
therefore on the revenues that hotels are able to achieve. As
supply increases, particularly in our key gateway cities, business
may be lost to newer hotels and/or rates may have to be reduced to
remain competitive.
In addition, management of third-party owned hotels under
management agreements, particularly in the Middle East and China
regions, and the use of joint ventures in the Middle East and other
markets gives rise to the risk of non-performance on the part of
the hotel owners and joint venture partners, and the ability of the
relevant hotels to deliver service and product quality to Group
brand and operating standards, especially when the strategic
objectives of those parties are not fully aligned with those of the
Group.
Mitigating Activities
-- Generally the Group operates properties which it owns, and
therefore is able to exercise control over the service and product
quality of those hotels.
-- For those hotels we own but do not operate, such as the
Novotel New York Times Square, the Group asset manages those
properties to ensure compliance with its service levels and
contractual requirements.
-- The Group continues to develop property specific asset
management plans which focus on the capital requirements of each
property in terms of regular maintenance and product enhancement to
help ensure the products remain competitive. Refurbishments are
phased appropriately in order to minimise the impact of those
programmes on operations, to the extent possible.
-- The Group currently endeavours to reinvest one-third of its EBITDA into its hotel estate.
-- The Group has in place brand and operating standards, and
regularly refreshes those, to provide for consistent service
delivery and product quality among its hotels, even if they are
owned by third parties and/or operated through joint ventures.
-- Management representatives are assigned to manage the
relationships with joint venture partners and third party hotel
owners.
Risk trend year on year - level.
Intellectual property rights and brands
Risk and Potential Impact
Future growth and pricing power and the image and reputation of
the Group in general will, in part, be dependent on the recognition
of the Group's brands and perception of the values inherent in
those brands. The ability of the group to protect its intellectual
property rights in those brands is instrumental in preventing them
from deteriorating in value.
In addition, the proliferation of e-commerce and online sales
channels, whether through affiliates, online travel agencies, meta
search websites or otherwise, can give rise to brand confusion and
further dilution if the Group's intellectual property is not used
appropriately and in accordance with the Group's brand and
marketing standards.
Mitigating Activities
-- In 2015 the Group allocated its hotels and brands into
distinct collections and updated its brand and marketing standards
to enhance and clarify its brand portfolio.
-- Substantial investment continues to be made in protecting the
Group's brands from misuse and infringement, by way of trade mark
registration, enforcement of intellectual property rights and
domain name protection. The Group utilises third party online brand
monitoring and protection agencies to assist with the Group's
enforcement activities.
Risk trend year on year - level.
Increasing competition
Risk and Potential Impact
The hotel industry operates within an inherently cyclical
marketplace where competition, both online and offline, is
increasing. An increase in market room supply, without
corresponding increases in demand, may lead to downward pressure on
rates, which in turn could negatively impact the Group's
performance.
With regard to online competition, the Group's hotel rooms are
booked through a number of distribution channels, one of which is
the online travel agency ("OTA"). OTAs tend to have higher
commission rates than more traditional distribution channels and
are taking an increasing share of bookings across the sector. Over
time, consumers may develop loyalties to the OTAs rather than to
our brands. These trends may impact our profitability. In addition,
sharing economy platforms, such as Airbnb, may expand their market
share and compete with more traditional business and leisure
accommodations
Mitigating Activities
-- The Group's flexible financial control and revenue management
systems help it to control costs and achieve better yields in
volatile trading conditions.
-- The Group continues to refresh its digital marketing strategy
and invest in its e-commerce, customer relationship management,
revenue management and reservations systems in order to help
increase rates, retain existing customers and generate new
business.
-- Since 2014, a new advanced central reservations system has
been in place providing a platform for future enhancements.
Additionally, the Group's website and loyalty programme are in the
process of being upgraded to help improve brand recognition and
drive more bookings through the Group's own, less costly
distribution channels.
Risk trend year on year - increasing.
Talent management and succession
Risk and Potential Impact
Execution of the Group's strategy depends on its ability to
attract, develop and retain employees with the appropriate skills,
experience and aptitude. This becomes more difficult as world
travel becomes more prevalent and competition in the hospitality
industry increases.
Failure of the Group to properly plan for the succession of key
management roles may cause operational disruption, potentially
delaying the execution of the Group's strategies and increasing
costs and inefficiencies.
Mitigating Activities
-- The Group has a strong service culture supported by
performance management and recognition systems, compensation and
benefits arrangements, and training and development programmes.
Labour relations are actively managed on a regional and local
basis.
-- During 2016 the Group, implemented changes to its below Board
level executive compensation to enhance employee engagement and
performance.
Risk trend year on year - increasing.
Financial
Risk and Potential Impact
The Group operates in numerous jurisdictions and trades in
various international currencies, but reports its financial results
in pounds sterling. Fluctuations in currency exchange rates and
interest rates may either be accretive or dilutive to the Group's
reported trading results and net asset value.
Unhedged interest rate exposures pose a risk to the Group when
interest rates rise, resulting in increased costs of funding and an
impact on overall financial performance.
Mitigating Activities
-- The Group's internal Treasury Management Committee monitors
and addresses treasury matters, including investment and
counterparty risks, in accordance with the Group's treasury policy.
The Board and Audit Committee receive regular updates on treasury
matters.
-- Foreign exchange exposure is primarily managed through the
funding of purchases and repayment of borrowings from income
generated in the same currency.
-- Interest rate hedges are only used to manage interest rate
risk to the extent the perceived costs are considered to outweigh
the benefits of having flexible, variable-rate debt.
Risk trend year on year - increasing.
Compliance and Corporate Responsibility
Legal and regulatory compliance
Risk and Potential Impact
The Group operates in many jurisdictions and is exposed to the
risk of non-compliance with increasingly complex statutory and
regulatory requirements, including competition law, anti-bribery
and corruption and data privacy compliance regimes. Non-compliance
with such regulations, which differ by jurisdiction and are an area
of increasing focus by regulators, could result in fines and/or
other damages, including reputational damage, being incurred,
particularly in the event a data breach should occur.
In addition, the Group may be at risk of litigation from various
parties with which it interacts, either through direct contractual
arrangements or as a result of providing services to customers.
Significant costs could be incurred where claims are not insured or
are not fully insured, and litigation could give rise to
reputational damage being suffered and management distraction.
In certain countries where the Group operates, particularly in
emerging markets, local practices and the legal environment may be
such that enforcement of the Group's legal rights is
challenging.
Mitigating Activities
-- The Group continues to monitor changes in the regulatory
environments in which it operates, identify its compliance
obligations and implement appropriate compliance and training
programmes. The Group has comprehensive global and, where
applicable, regional policies and procedures in place to address
competition law, data privacy, ethical business conduct,
whistle-blowing, anti-corruption and bribery, gifts and hospitality
and charitable donations, among others.
-- The Group maintains in place industry standard insurance
cover to mitigate many potential litigation risks, such as
employment practices liability, workers compensation and general
liability policies.
-- The Group has controls in place to manage and help mitigate
the risks associated with its various contractual relationships,
from execution through to termination, insured and uninsured
litigation and other disputes. Regular litigation reports are
provided to the Board.
Risk trend year on year - increasing.
Health and safety and social responsibility
Risk and Potential Impact
The Group is exposed to a wide range of regulatory requirements
and obligations concerning the health and safety of employees,
visitors and guests. Failure to implement and maintain sufficient
controls regarding health and safety issues could expose the Group
to significant sanctions, both civil and criminal, financial
penalties and reputational damage.
Furthermore, as a significant property owner and operator of
hotels in multiple jurisdictions, the Group must do more than
simply comply with local regulations. We must act in a responsible
way towards our stakeholders and the communities in which our
hotels operate.
Mitigating Activities
-- The Group has established and maintains health and safety and
environmental management systems which it seeks to align with the
requirements of ISO 14001 and OHSAS 18001. By using these standards
the Group is committed to working to the highest standards of
health and safety and to an internationally accredited system.
-- The Group has adopted various corporate responsibility
initiatives in relation to its employees, guests and the
environment. The Group's operating regions have flexibility to
tailor such initiatives and adopt new ones to better conform to
local and regional customs and practices.
Risk trend year on year -level.
Vulnerability to cyber attacks or fraud
Risk and Potential Impact
Increasing reliance on online distribution channels and
transactions over the internet and the aggregation and storage of
guest and other information electronically, both on
company-controlled servers and networks and in cloud-based
environments, present heightened risks of attacks affecting the
operation of those systems and networks and/or a potential loss or
misuse of confidential or proprietary information. The occurrence
of cyber risks could disrupt business, the ability of the Group to
take or fulfil bookings or lead to reputational and monetary
damages, litigation or regulatory fines.
In addition, various aspects of the Group's operations are
required to achieve compliance with the payment card industry data
security standards ("PCI-DSS"), and failure to do so could result
in penalties and/or withdrawal of credit card payment
facilities.
Mitigating Activities
-- Periodically the Group engages external consultancy firms to
conduct security and penetration testing services in relation to
the Group's websites and implements enhancements where necessary.
Also, as part of the Group's PCI-DSS compliance activities, all
regions conduct additional internal and external penetration
testing annually as required.
-- The Company has in place, and regularly reviews, cyber
insurance coverage to protect against certain cyber risks.
-- Software systems are regularly updated to allow for the
latest security updates and patches to be installed.
-- Where the Group outsources critical information technology
systems, including its point of sale and property management
systems, the Group utilises reputable suppliers that have
industry-standard or best-in-class data security protocols. The
Group's hotels utilise Oracle's MICROS property management system,
for example.
-- The regional information technology teams have developed
disaster recovery plans and guides with regard to their
high-priority systems that need to be up-and-running, and tests are
conducted on select mission-critical systems annually to verify
their recoverability offsite.
-- Information technology policies and procedures have been
updated to reflect implementation of the latest PCI-DSS compliance
standards.
Risk trend year on year - increasing.
Natural, geopolitical and economic events
Risk and Potential Impact
Sustained levels of occupancy and the Group's ability to
optimise room rates and profitability can be adversely affected by
various external events that may reduce travel or increase the
Group's operating costs.
Such events, which often are beyond the control of management,
may be localised to a particular community, city or country or they
may have a wider international impact.
Examples of such events include severe weather conditions and
natural disasters, acts of terrorism, war or perceived risk of
armed conflict, epidemics, nationalisation of assets or
restrictions on the repatriation of funds, increased travel costs,
industrial action and political and/or social unrest. Notably the
UK referendum on EU membership and while we have not seen any
immediate or material impacts from that decision aside from
significant exchange rate fluctuations, we recognise that the
coming years will be challenging in the UK and are monitoring
political and macro-economic developments closely. Appropriate
insurance coverage may not be available in the market in some
instances or coverage may not be available on commercially viable
terms.
Mitigating Activities
-- The Group has in place disaster recovery, crisis response and
business continuity plans to enable it to respond to major
incidents or emergencies.
-- Management pro-actively monitors geopolitical developments
and seeks to identify emerging risks at the earliest opportunity
and implements ownership structures, internal controls and other
steps to minimise these exposures to the greatest extent
possible.
-- The Group's flexible financial and revenue management systems
help it to control costs and achieve better yields in volatile
trading conditions.
-- The Group's insurance requirements are regularly reviewed by
management to ensure that the coverages obtained are appropriate to
the company's risk profile relative to the cost of cover available
in the relevant markets.
-- The wide geographic spread of the Group's properties is a
natural hedge against the impact of natural, geopolitical and
economic events.
Risk trend year on year - increasing.
Related party transactions
The following has been extracted from pages 128 to 129 of the
Annual Report and Accounts 2016.
Related parties
Identity of related parties
Transactions between the Company and its subsidiaries have been
eliminated on consolidation and are not disclosed in this note.
Details of transactions between the Group and other related parties
are disclosed below. All transactions with related parties were
entered into in the normal course of business and at arm's
length.
The Group has a related party relationship with its joint
ventures, associates and with its Directors and executive
officers.
Transactions with ultimate holding company and other related
companies
The Group has a related party relationship with certain
subsidiaries of Hong Leong Investment Holdings Pte. Ltd ("Hong
Leong") which is the ultimate holding and controlling company of
Millennium & Copthorne Hotels plc and holds 64.9% (2015: 65.3%)
of the Company's shares via City Developments Limited ("CDL"), the
intermediate holding company of the Group. During the year ended 31
December 2016, the Group had the following transactions with those
subsidiaries.
The Group deposited certain surplus cash with Hong Leong Finance
Limited, a subsidiary of Hong Leong, on normal commercial terms. As
at 31 December 2016, GBP4m (2015: GBP3m) of cash was deposited with
Hong Leong Finance Limited.
Fees paid/payable by the Group to CDL and its other subsidiaries
were GBP2m (2015: GBP2m) which included rentals paid for the Grand
Shanghai restaurant and Kings Centre; property management fees for
Tanglin Shopping Centre; charges for car parking, leasing
commission and professional services.
As at 31 December 2015, City e-Solutions Limited ("CES"), a
fellow subsidiary of CDL held 1,152,031 ordinary shares in the
Company. CES through its subsidiaries provided consultancy,
management and reservation services to M&C for the year ended
31 December 2015 for a total of GBP1m. In 2016, CES ceased to be a
subsidiary of CDL.
Transactions with joint venture
City Hotels Pte. Ltd, a 100% subsidiary of the Group, provided a
shareholder loan facility of 550m Thai Baht (GBP12m) to Fena Estate
Company Limited ("Fena"), its 50% owned joint venture. At 31
December 2016 and 2015 all of this facility was fully drawn. The
loan attracts interest of 4.5% (2015: 4.5%) per annum. This
interest was rolled up into the carrying value of the loan. The
total loan outstanding as at 31 December 2016, including rolled up
interest, was 779m Thai Baht (GBP18m) (2015: 754m Thai Baht
(GBP14m)).
The Group provided a further US$2m (GBP1m) operator loan
facility to Fena which was fully drawn down. This loan together
with interest charged at 2.2% per annum was fully settled in
2015.
Transactions with key management personnel
The beneficial interest of the Directors and their connected
persons in the ordinary shares of the Company was 0.16% (2015:
0.16%).
In addition to their salaries, the Group also provides non-cash
benefits to Directors and executive officers and contributes to a
post-employment defined contribution plan depending on the date of
commencement of employment. The defined contribution plan does not
have a specified pension payable on retirement and benefits are
determined by the extent to which the individual's fund can buy an
annuity in the market at retirement.
Executive officers also participate in the Group's share option
programme, Long-Term Incentive Plan and the Group's Sharesave
schemes. The key management personnel compensation is as
follows:
2016 GBPm) 2015
(GBPm)
------------------------------ ----------- --------
Short term employee benefits 6 5
------------------------------ ----------- --------
Share-based payment - 2
------------------------------ ----------- --------
6 7
------------------------------ ----------- --------
Directors 1 2
------------------------------ ----------- --------
Executives 5 5
------------------------------ ----------- --------
6 7
------------------------------ ----------- --------
Statement of Directors' Responsibilities
The following responsibility statement is repeated here solely
for the purposes of complying with DTR 6.3.5. The statement relates
to and is extracted from page 67 of the Annual Report and Accounts
2016.
The statement is for the full Annual Report and Accounts 2016
and not the extracted information presented in the announcement or
otherwise.
Responsibility statement
"We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company and the undertakings included in the consolidation
taken as a whole;
-- the strategic report includes a fair review of the
development and performance of the business and the position of the
Company and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face; and
-- the annual report and accounts, taken as a whole, is fair,
balanced and understandable and provides the information necessary
for shareholders to assess the Company's position and performance,
business model and strategy
On behalf of the Board
Aloysius Lee Tse Sang
Group Chief Executive Officer
16 February 2017"
For further information please contact:
Millennium and Copthorne Hotels plc Tel:+44 (0) 207872 2444
Jonathan Grech, General Counsel and Company Secretary
Peter Krijgsman, Financial Communications (Media)
This information is provided by RNS
The company news service from the London Stock Exchange
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