Announcement

3rd March 2022

The following announcement was issued today to a Regulatory Information Service approved by the Financial Conduct Authority in the United Kingdom.

MANDARIN ORIENTAL INTERNATIONAL LIMITED

2021 PRELIMINARY ANNOUNCEMENT OF RESULTS

HIGHLIGHTS

·     Much improved performance

·     Pandemic continues to impact results

·     Strong liquidity and funding position

·     Four hotels opened and five new projects announced

"2021 was a challenging year, as the impact and uncertainties of COVID-19 continued to restrict global travel.  However, performance improved in the second half as barriers to travel were gradually reduced in most parts of the world.  This, together with government and other pandemic-related support enabled the Group to significantly reduce underlying losses.  Trading conditions, however, remain difficult, particularly in East Asia, and an underlying loss is expected for the first half of 2022.  The outlook for the full year is dependent on the level of travel restrictions implemented by governments.  With its strong, globally recognised brand, loyal customer base and robust development pipeline, Mandarin Oriental remains well positioned for long-term growth."

Ben Keswick

Chairman

RESULTS 

MANDARIN ORIENTAL INTERNATIONAL LIMITED

PRELIMINARY ANNOUNCEMENT OF RESULTS

FOR THE YEAR ENDED 31ST DECEMBER 2021

OVERVIEW

The Group's financial performance in 2021 improved significantly compared with 2020, although results remained materially below pre-pandemic levels, with underlying losses of US$68 million.  Combined total revenue of hotels under management increased by 78% in 2021 compared to the prior year, benefitting from the relaxation of travel restrictions in most parts of the world in the second half of 2021.  Travel restrictions, however, in most of East Asia remained in place throughout the year.

Results were boosted by COVID-19-related receipts that included government support, primarily in Europe, rent concessions in Tokyo, and business interruption insurance proceeds for hotels in the United States.  At 31st December 2021, the Group's liquidity position remained robust.

2021 FINANCIAL PERFORMANCE

Underlying earnings before interest, tax, depreciation and amortisation ('EBITDA') were US$41 million, compared to EBITDA losses of US$74 million in 2020. The Group's underlying losses were reduced to US$68 million for the year, from US$206 million in 2020.  The 2020 result included a US$31 million post-tax impairment of the carrying value of the leasehold interest in the Geneva hotel.

There was a non-trading loss of US$74 million (US$475 million in 2020), due to a 3% decrease in the fair valuation of the Causeway Bay site, which is being developed into a new office and retail complex (compared with a decrease of 15% in 2020).  Accordingly, losses attributable to shareholders were US$141 million, compared to losses of US$680 million in 2020.

The adjusted net asset value per share, which reflects both the independent valuation of the Group's owned hotel properties and of the Causeway Bay site, was US$3.93 at 31st December 2021, a 4% decrease compared with US$4.09 per share at the end of 2020.

At 31st December 2021, net debt was US$517 million, compared to US$506 million at the end of 2020.  Gearing as a percentage of adjusted shareholders' funds was 10%, unchanged from 2020.  The Group remains well funded with a robust liquidity position that was strengthened with the addition of new committed facilities in 2021.

No dividend will be paid in respect of 2021.

YEAR IN REVIEW

Performance in 2021 was better than 2020, as restrictions on travel and hospitality operations were gradually relaxed in most countries.  Performance varied by region, however, as demand remained heavily influenced by the extent and pace with which these restrictions were lessened.

In East Asia, restraints on international travel remained in place throughout the year, limiting most hotels to domestic demand.  In Europe and the United States, a relaxation of travel restrictions in the second half of the year allowed business levels to improve.

EBITDA for most of the Group's owned hotels improved, driven by both better trading conditions and government support in some countries.  Results were notably better in Hong Kong, London, Munich, Geneva, Paris, Boston and New York.  The EBITDA from the Group's property interests in 2021 was US$24 million, compared to a loss of US$62 million in 2020.  After depreciation and interest charges, there was an underlying loss from the Group's property interests of U$71 million in 2021, compared to a loss of US$174 million in the prior year.

Performance of the management business improved substantially, producing an EBITDA of US$17 million compared to a loss of US$12 million in 2020.  Particularly strong management fees were earned in resort destinations such as Bodrum and Dubai.  There was an underlying profit of US$5 million in 2021, compared to a loss of US$30 million in 2020.

Whilst the Group continues to maintain cost control and to seek permanent savings, its main focus is now on rebuilding revenues and business activity levels.  Capital expenditure continues to be closely scrutinised.

DEVELOPMENT

The Group's total number of hotels under operation has increased to 36, following the opening of its latest property in Shenzhen in January 2022.  In 2021, the Group took over the management of the Al Faisaliah Hotel in Riyadh and opened a new hotel on the Bosphorus in Istanbul, both under management contracts.  The Group also reopened Mandarin Oriental Ritz, Madrid, in which it owns a 50% interest, after an extensive programme of restoration and refurbishment.

The Group's development pipeline remains robust, with 24 projects expected to open in the next five years.  In 2021, new management contracts were announced in Da Nang, Vietnam and Hangzhou, China, in addition to a standalone residences project in Beverly Hills.  Two new deals in Costa Navarino and the Maldives have recently been announced since the start of 2022.

Two hotels and three standalone residences projects are scheduled for opening in 2022, while the Group also expects to rebrand the Al Faisaliah Hotel in Riyadh, as well as the Emirates Palace in Abu Dhabi.

In Hong Kong, the Causeway Bay site under development remains on track to complete in 2025.

GOVERNANCE ENHANCEMENTS

The Group has an ongoing focus on enhancing its governance, and in the past year it has made changes to the composition of its Board, to reduce its size and to increase its diversity and bring greater sector expertise through the appointment of new independent non-executive directors.  The Group has also established formal Audit, Remuneration and Nominations Committees.

PEOPLE

On behalf of the Board, I would like to take this opportunity to express my sincere appreciation to all our colleagues for their continuing commitment and dedication during these very challenging times.  The contributions of our colleagues are central to the Mandarin Oriental guest experience and we will remain focused on ensuring Mandarin Oriental is an employer of choice.

Jack Chen, Julian Hui, Lincoln K.K. Leong, Anthony Nightingale and Percy Weatherall retired from the Board in December 2021.  We thank each of them for their valuable contributions over many years.  With effect from 1st December 2021, Jinqing Cai and Richard Solomons have joined the Board as Independent Non-Executive Directors and bring a wealth of relevant experience.

Craig Beattie stepped down as Chief Financial Officer at the end of August and was succeeded by Matthew Bishop.  We would like to thank Craig for his contribution to Mandarin Oriental.

OUTLOOK

2021 was a challenging year, as the impact and uncertainties of COVID-19 continued to restrict global travel.  However, performance improved in the second half as barriers to travel were gradually reduced in most parts of the world.  This, together with government and other pandemic-related support enabled the Group to significantly reduce underlying losses.  Trading conditions, however, remain difficult, particularly in East Asia, and an underlying loss is expected for the first half of 2022.  The outlook for the full year is dependent on the level of travel restrictions implemented by governments.  With its strong, globally recognised brand, loyal customer base and robust development pipeline, Mandarin Oriental remains well positioned for long-term growth.

Ben Keswick

Chairman

GROUP CHIEF EXECUTIVE'S REVIEW

KEY HIGHLIGHTS

In a year that has seen continuing disruption and uncertainty as a result of the pandemic, we are pleased that the Group has made good progress in a number of areas and was able to deliver an improved operational and financial performance, although results remained materially behind pre-pandemic levels.

All of our hotels were open at the end of 2021, after numerous closures and interruptions to their business during the two preceding years.  Mandarin Oriental Ritz, Madrid reopened in April to great acclaim after an extensive restoration, a property that is sure to be a landmark European destination for many years to come.  We also took over management of the Al Faisaliah Hotel in Riyadh, opened a hotel on the Bosphorus in Istanbul and, at the start of 2022, opened a hotel in Shenzhen.  Three new deals were announced in 2021, including a standalone branded residences project in Beverly Hills, and a further two deals have already been announced so far in 2022, adding to the strong pipeline that we have diligently built over the last few years.

We made significant investments in the period in our digital platforms, including the re-design of mandarinoriental.com, and through our renewed marketing efforts were able to pass the milestone of one million Fans of M.O., underlining the success of a programme that was first launched in 2018.  We also strengthened our leadership team by bringing on board Joanna Flint as Chief Commercial Officer, a new role which oversees the development and execution of the Group's commercial strategy while also taking executive responsibility for all aspects of Mandarin Oriental's customer experience.  We are also delighted by the substantial progress we have made in effectively eliminating single-use non reusable plastics from the operations of the Group.

Our operating performance was much improved, and our hotels continue to hold market-leading positions.  Financially, while performance remains well below pre-COVID-19 levels, we were able to produce significantly improved results, moving from an EBITDA loss of US$74 million in 2020 to an EBITDA profit of US$41 million in 2021.  As a consequence of our property interest in many of our hotels and the associated depreciation, we remain in an underlying loss position, although we were able to reduce this loss by over 60%, from US$206 million to US$68 million.

2021 PERFORMANCE

2021 saw a significant improvement in the financial performance of the Group.  It was, however, well below pre-pandemic levels due to the continued disruption caused byCOVID-19.  The Group reported EBITDA of US$41 million and an underlying loss of US$68 million, a marked improvement from 2020, albeit still significantly below 2019 levels. The Group recorded positive EBITDA in the third and fourth quarters, the first such positive performances since the fourth quarter of 2019.  Revenue generation and innovation, as well as cost control, remained as key areas of focus.  Capital expenditure was tightly controlled.  The combined total revenue from hotels under management was US$1,054 million, an increase of 78% over 2020, but behind the US$1,325 million recorded in 2019.

In East Asia, border controls and restrictions on mobility and hospitality operations were in place throughout the year.  The ability to travel domestically varied depending on the extent of restrictions and hotels remained reliant on domestic demand.  As a consequence, some hotels, such as Bangkok, Kuala Lumpur and Taipei, operated at very low levels of occupancy. The best performances were achieved in the Chinese mainland, supported by steady domestic demand, and occupancy in Hong Kong, Singapore and Jakarta was also commendable given the stringent restrictions imposed by governments.  Despite the challenging environment, occupancy for the region increased to 35%, from 27% in 2020, while average daily rates ('ADR') were broadly unchanged from 2020.

In the rest of the world, whilst border controls and restrictions were in place during the first half of the year, these started to lessen towards the end of the second quarter as vaccination programmes accelerated.  This led to increased travel and an improvement in trading conditions.  The Group's hotels benefitted from pent-up leisure demand and the relative strength of suite bookings.  Several hotels in Europe also received government support, boosting financial performance.  In Europe, Middle East and Africa ('EMEA'), the Group recorded occupancy of 48% in the second half of the year and RevPAR for EMEA was up 78% for the full year, driven by a strong increase in ADR, which rose to US$983, ahead of 2019 levels. Similarly, in America, RevPAR and ADR for the region were up 55% and 24% compared to 2020, with ADR at US$593, also ahead of 2019 levels.

Owned Hotels Performance

The Group's financial performance is heavily dependent on the performance of its owned and partially-owned properties.  These hotels recorded a positive EBITDA of US$24 million, but an underlying loss of US$71 million, due to the substantial amount of depreciation attributable to the properties.

Several of the Group's owned or partially-owned hotels are in East Asia and continued to be significantly impacted by stringent government restrictions on travel and movement.  In particular, Hong Kong effectively remained closed to travel in 2021 and while our flagship hotel there was able to deliver positive EBITDA by competing effectively with attractive staycation rates, the hotel posted an underlying loss.  The opening of both Hong Kong's border with the Chinese mainland and its international border are critical for this important hotel to substantially improve its financial performance.  The Group's hotels in Tokyo, Jakarta, Bangkok and Kuala Lumpur all incurred EBITDA losses, while the hotel in Singapore was EBITDA positive.

In Europe, as restrictions eased, our hotels were able to perform better. London, Munich, Geneva and Paris achieved positive EBITDA, driven by significantly improved demand in the second half of the year, as well as government financial support totalling US$36 million.  Most of the Group's owned hotels in Europe were able to achieve underlying profit, with the exception of Madrid and London, both of which carry substantial depreciation charges following major recent renovations.

In America, there were mixed performances at individual hotels.  Miami benefitted from pent-up leisure demand and was able to achieve a positive EBITDA and record an underlying profit.  New York and Boston both improved significantly from 2020 and almost achieved positive EBITDA.  Performance in Washington D.C. was more challenging given the hotel's size and historic reliance on corporate and group demand, which remained weak.  The Group also received some US$3 million in insurance proceeds for business interruption at its hotels in America.

Management Business Performance

The Group's management business reported a positive EBITDA of US$17 million and an underlying profit of US$5 million, a marked improvement from the prior year when an EBITDA loss of US$12 million and underlying losses of US$30 million were incurred.

Particularly strong management fees were earned in several hotels.  In East Asia, The Landmark Mandarin Oriental, Hong Kong served as a quarantine hotel and benefitted from strong demand, achieving occupancy of over 60%.  Hotels on the Chinese mainland, including Shanghai and Sanya, also delivered good performances.  In EMEA, several leisure and resort destinations experienced pent-up demand, especially in destinations where restrictions on travel were limited. Dubai and Bodrum achieved occupancies and ADR that exceeded 2019 levels, delivering record management fees.

NEAR-TERM PRIORITIES

Over the last two years or so, we have operated with highly uncertain market conditions and this seems likely to continue for a while.  We have, however, adapted our strategy, operating models and ways of working and we believe we are now a far more flexible and agile business than previously.

In the near term, our priorities are to rebuild business levels and win new business, enhance our "Colleague Experience", uphold the brand's reputation for quality, and maintain our agile approach to operations to improve profitability.

1)    Rebuilding business: we must ensure that, as demand returns, our hotels are winning market share.  As we have seen, demand can fluctuate quickly, and it is therefore critical that we are proactive and flexible in how we reach and respond to customers.  Consumer behaviour is changing: direct and omni-channel bookings have increased substantially, corporate travel remains muted and demand for leisure-oriented experiences has rebounded strongly.  We have reorganised ourselves to adapt to customer behaviour more quickly yet also need to be ready to adjust further as trends evolve.

2)    Enhancing our "Colleague Experience": our colleagues have faced enormous pressure over the last two years.  Throughout the pandemic, they have continued to serve customers with passion and pride, delivering the exceptional experiences  Mandarin Oriental is renowned for.  It is critical that we recognise their contribution, by improving compensation and benefits, driving engagement and providing attractive learning and career development opportunities.  Hospitality talent is in high demand, across both hotels and other industries, and we must focus on the attraction and retention of colleagues as a strategic priority.

3)    Upholding exceptional quality: long periods of low demand have sometimes made it difficult to maintain quality standards.  Exceptional quality in service standards underpins the Mandarin Oriental brand and we must ensure that we maintain our reputation as a leader in luxury hospitality.

4)    Maintaining operational agility: we continue to refine our operating model in hotels in response to fluctuating demand.  This has included a review of organisation structures and the introduction of labour management and productivity tools.  Whilst these developments will help to rebuild profitability, we will balance their use with the need to maintain our exceptional service standards and colleague morale.

STRATEGY- A WORLD OF FANS

Last year, we launched our new vision - A World of Fans - and we remain confident that this vision, underpinned by our strategic priorities, will advance both the value of the brand and the profitability of the Group.  Through A World of Fans, we see an opportunity to build meaningful and long-lasting relationships with a global community of Fans.  Every customer interaction, physical or digital, is an opportunity to create a Fan - someone who spends with us, works with us, advocates for us or aspires to experience life exceptionally with Mandarin Oriental luxury.  We believe the priorities outlined below remain the right foundation to drive long-term business performance and growth.

·    Elevating our brand - the brand is the Group's most powerful asset.  We will grow our brand by continuing to drive the momentum of our hotel and residences pipeline, expanding the global footprint of Mandarin Oriental.  In addition, we are starting to establish a presence beyond the four walls of our hotels, both through local hotel activities as well as continued investments in innovative partnerships that extend the reach and value of our brand, such as our investment in StayOne, a peer-to-peer luxury holiday home rental platform, Shop M.O., our online retail store and the O&MO Alliance, our strategic alliance with The Oberoi Group.

·    Powering our core - we would like to have market-leading positions in all our hotels.  To achieve this, our commercial organisation has recently been optimised to ensure we leverage the full potential of the brand's extensive network, and to ensure that customers receive personalised access to our full range of bespoke luxury experiences across our portfolio.  Through Fans of M.O., our industry unique customer recognition programme, we have over one million loyal Fans allowing us to create relevant, long-lasting and mutually beneficial relationships with our customers.  We are continuing to invest heavily in our digital capabilities, and we expect further significant improvements in our digital experience through 2022.  At our hotels, we are progressing well with our roadmap to modernise core business systems and integrate insights drawn from data into our service delivery to continually elevate customer experiences to even higher levels.

·    Lifting our people - our people underpin the unique luxury experience that defines Mandarin Oriental's service proposition.  The pandemic has brought new challenges, and we must respond to the increased pressures on our colleagues by providing work environments that are attractive, engaging and flexible.  At the same time, with a robust pipeline on the horizon, our Group will experience substantial growth over the next five years and it is essential that we retain our cultural DNA as we welcome new colleagues into Mandarin Oriental.  Our Mandarin Oriental colleagues are extremely loyal, and in turn we are determined to reward that loyalty by a continued commitment to maintaining an exceptional colleague workplace experience.

·    Exceptional quality - our unwavering focus on delivering the highest standards of luxury hospitality and experiences is at the heart of the brand's reputation and is a pivotal competitive differentiator.  This must remain evident from the way we design our hotels, known for creating a unique sense of place, through to the delivery of warm, personalised and exceptional service consistently throughout our portfolio.  Reinforcing our product and service standards is ever more critical as we plan for 21 hotels and 15 residences opening in the next five years.

CORE VALUES

Our core values of customer focus and sustainability are central to the culture of Mandarin Oriental.  These cut across all facets of our strategy and are deeply engrained in Mandarin Oriental's culture.

Customer focus

As we extend the reach of our brand, serving an increasingly diverse customer base, we embed customer focus throughout the organisation by removing the barriers to innovation, such as unnecessary hierarchies and bureaucracy, and encouraging risk taking and entrepreneurialism. We foster and promote collaboration, to ensure that we enable our colleagues to constantly focus on proactively delighting our customers.

Sustainability

Our culture extends to how we serve as stewards of our communities.  The Group drives sustainability commitments that align with the United Nations Sustainable Development Goals and we are focused on four areas: the planet, community and customers.  We have integrated sustainability throughout our operations and processes, from sustainable development discussions with owners, to environmental management systems that ensure continuous environmental performance improvements, daily procurement decisions that embed ethical and sustainability considerations and the empowerment of our colleagues and guests to make a difference to our planet and communities  We were delighted that, with the support of our colleagues, we were largely able to substantially reduce single-use plastics from the operation of our hotels in 2021, and are on track to eliminate them in 2022, in spite of the increased pressure to return to relying on single-used plastics due to COVID-19.

DEVELOPMENT STRATEGY AND BUSINESS DEVELOPMENT

The Group operates 36 hotels today.  In 2021, three new projects were announced in Hangzhou, Da Nang and a standalone branded residences project in Beverly Hills and two further deals in Costa Navarino and the Maldives have been announced since the start of 2022.  Whilst there have been some delays in the progression of project developments due to the pandemic, our pipeline remains robust with 24 announced projects to open in the next five years, comprising nine standalone hotel projects, 12 projects with hotel and residences components and three standalone residences projects.

Historically, as the Group was starting out and expanding its brand into key gateway cities, it was sometimes necessary to invest equity into the ownership of an asset to secure projects. Today, with the strength of the brand, and our track record in creating market leading hotels, this is not usually necessary.  Our strategy for portfolio expansion is therefore focused on growing through management contracts.  We are seeking to diversify into resort destinations, broaden our reach in key cities where the brand is currently absent and consolidate the brand's position by adding second or third hotels in certain destinations.  Our projects in the Maldives and Grand Cayman (resort destinations), Zurich (a strategically important city) and Mayfair and Dubai (second hotels in these destinations) are examples that illustrate this.  Over many years, we have successfully built a portfolio of iconic hotels and are now seeing the benefits this can bring in terms of momentum for signing new projects.  We expect this momentum to build as we seek to secure more brand defining projects and new growth opportunities.

By focusing on the management business, the Group is seeking to accelerate its pace of growth and its scale, transitioning the business away from a reliance on property and towards hotel and brand management.  Property ownership is still a strategic option for the Group, where it can play a key role in securing projects, but this will be done sparingly and only where alternatives are scarce.  Our current portfolio of owned hotels is continuously reviewed and, provided we are able to retain long-term management contracts, we would consider opportunities for value realisation.  This will strengthen the Group's balance sheet and enable us to accelerate the growth of our management business.

During the year we completed an extensive restoration of Mandarin Oriental Ritz, Madrid. Good progress was made with the redevelopment of the site in Causeway Bay, Hong Kong which used to house The Excelsior hotel.  Completion of a new Grade A office and retail complex remains on schedule for 2025.  There has been no change to the Group's strategy for this site, which is a valuable non-core asset.

Looking ahead, we expect 2022 to be an extremely busy year.  We plan to open two new hotels in Mayfair and Luzern, three standalone residences projects in New York, Beverly Hills and Barcelona, and rebrand the Al Faisaliah Hotel and the Emirates Palace.  In addition to the two recently announced projects, I would also expect a number of further projects to be signed during the year.

OUR PEOPLE

I would like to take this opportunity to express my appreciation to each and every one of my colleagues for the tireless effort and dedication they have demonstrated through the enormous challenges we have faced during the upheavals of the last two years.  The commitment shown by our colleagues to delivering exceptional service to our customers underpins Mandarin Oriental's brand promise and is central to achieving A World of Fans.

LOOKING AHEAD

There continue to be numerous uncertainties associated with the pandemic.  We have adapted well to these conditions and taken important steps to keep up with trends in consumer behaviours that have been accelerated by the pandemic.  We see great opportunities ahead for the Group to grow rapidly on the foundations which have been laid over the last few years.  We are extremely well positioned to grow and achieve scale as a hotel management and brand management company, by delivering on our pipeline, continuing to build deep relationships with our Fans, investing in our digital reach and presence, reinforcing a strong "Colleague Experience", and sustaining the exceptional quality standards that the brand is known for.

We are confident in the recovery of luxury travel, and the ability of Mandarin Oriental to deliver meaningful long-term growth.  We at Mandarin Oriental look forward to delivering exceptional experiences to A World of Fans as barriers to travel are gradually removed.

James Riley

Group Chief Executive