Results today from FTSE 250 hotel group Millennium & Copthorne (MLC) confirm that the refurbishment of its flagship Mayfair hotel in London has significantly hit sales and profits.
Investors were warned of the potential impact last year, although the full amount was not disclosed.
Shares in the firm are broadly unmoved at 461p although over the last year they have fallen 13.5%.
The Mayfair hotel - soon to be renamed and reopened as The Biltmore, Mayfair - is one of the biggest contributors to sales and profits.
Closing and refurbishing the Mayfair from July 2018 has wiped off an estimated £20m in revenues and £12m in operating profits for the year to 31 December.
Over the same period, the closure of the Mayfair resulted in revenue per available room (RevPAR) in London dropping 7.4%.
Excluding the Mayfair, RevPAR in London actually rose 3.3% thanks to better occupancy rates and a higher average room rate.
RevPAR is a key measure of how well hotels fill their rooms and is calculated by multiplying the average daily room rate by the occupancy rate.
Looking at Millennium & Copthorne’s performance over the last quarter of 2018, RevPAR increased from £85.15 to £88.49 compared to the same period in 2017.
Sales were also slightly higher at £267m against £264m but pre-tax profit plummeted from £30m to £7m.
HEADWINDS SET TO CONTINUE
Millennium & Copthorne has cautioned that many of last year's economic headwinds including the US-China trade war, Brexit and rising wages, are likely to continue in 2019.
The impact of Brexit has been particularly difficult for Millennium & Copthorne as it struggles to recruit EU workers which comprise over half of its London workforce.
‘The shortage of talent - from rank and file to senior management - is intensifying with many new hotels being built around the world, not to mention the growth of Airbnb and serviced apartments,’ comments chairman Kwek Leng Beng.
He argues the best way forward for the company is to continue investing in hotels and restore profitability at its New York hotels.
In a research note in January, Berenberg’s Ned Hammond argued that Millennium & Copthorne’s under-performance in several key markets last year is unlikely to improve significantly due to ongoing headwinds.
