MCK: 2018 Full Year Results

Results announcement
(for Equity Security issuer/Equity and Debt Security issuer)



Results for announcement to the market
Name of issuer Millennium & Copthorne Hotels New Zealand Limited
Reporting Period 12 months to 31 December 2018
Previous Reporting Period 12 months to 31 December 2017

Amount (000s) Percentage change
Revenue from ordinary
activities
$218,838 Up 16.86%
Profit (loss) from ordinary
activities after tax attributable
to security holder
$49,375 Up 14.52%
Net profit (loss) attributable
to security holders
$49,375 Up 14.52%
Interim/Final Dividend
Amount per Quoted Equity
Security
$0.075
Imputed amount per sec
Quoted Equity Security
$0.029167
Record Date 10 May 2019
Dividend Payment Date 17 May 2019
Net tangible assets per
Quoted Equity Security
$404.41 Up 8.72%
A brief explanation of any of
the figures above necessary
to enable the figures to be
understood
Please refer to the Chairman's Review accompanying this
release.

Authority for this announcement
Name of person

authorised
to make this announcement
Takeshi Ito – Company Secretary

Contact phone number +64 9 353 5005
Contact email address takeshi.ito@millenniumhotels.com
Date of release through MAP

13/02/2019

Audited financial statements accompany this announcement.

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Corporate Action Notice
(for a Distribution)

Page
1 of 2

1

If the distribution is imputed, then the total amount of the distribution is the cash distribution plus the imputation credits. The
imputation credits plus the RWT amount must be 33% of the gross distribution. If the distribution is fully imputed the imputation
credits will be 28% of the gross distribution with remaining 5% being RWT. You may delete this footnote when you release this form
to market

Section 1: issuer information
Name of issuer Millennium & Copthorne Hotels New Zealand Limited
Financial product name/description Redeemable Preference Shares
NZX ticker code MCKPA
ISIN (If unknown, check on NZX
website)
NZMCKE0005S6
Type of distribution
(Please mark with an X in the relevant
box/es)
Full Year X Quarterly
Half Year Special
DRP applies No
Record date Close of trading on: 10/05/2019
Ex-Date (one business day before the
Record Date)
09/05/2019
Payment date (and allotment date for
DRP)
17/05/2019
Total monies associated with the
distribution
$3,955,465.73

Source of distribution (for example,
retained earnings)
Retained earnings
Section 2: distribution amounts
Total amount
1
$0.104167
Cash per financial product $0.075
Supplementary distribution $0.013235
Section 3:
Is the distribution imputed Fully imputed
Partial imputation
No imputation
If fully or partially imputed, please state
imputation rate as % applied
28%
Imputation tax credits per financial
product
$0.029167

Page 2 of 2


Resident withhold tax amount per
financial product
$0.005208
Section 4: distribution re-investment plan (not applicable)
DRP % discount (if any)
Start date and end date for determining
market price for DRP

Date strike price to be announced (if not
available at this time)

Specify source of financial products to
be issued under DRP programme (new
issue or to be bought on market)

DRP strike price per financial product
Last date to submit a participation
notice for this distribution in accordance
with DRP participation terms

Section 5: authority for this announcement
Name of person authorised to make this
announcement
Takeshi Ito – Company Secretary
Contact phone number +64 9 353 5005
Contact email address takeshi.ito@millenniumhotels.com
Date of release via MAP 13/02/2019

---

Corporate Action Notice
(for a Distribution)

Page
1 of 2

1

If the distribution is imputed, then the total amount of the distribution is the cash distribution plus the imputation credits. The
imputation credits plus the RWT amount must be 33% of the gross distribution. If the distribution is fully imputed the imputation
credits will be 28% of the gross distribution with remaining 5% being RWT. You may delete this footnote when you release this form
to market

Section 1: issuer information
Name of issuer Millennium & Copthorne Hotels New Zealand Limited
Financial product name/description Ordinary Shares
NZX ticker code MCK
ISIN (If unknown, check on NZX
website)
NZMCKE0004S9
Type of distribution
(Please mark with an X in the relevant
box/es)
Full Year X Quarterly
Half Year Special
DRP applies No
Record date Close of trading on: 10/05/2019
Ex-Date (one business day before the
Record Date)
09/05/2019
Payment date (and allotment date for
DRP)
17/05/2019
Total monies associated with the
distribution
$7,910,905.73

Source of distribution (for example,
retained earnings)
Retained earnings
Section 2: distribution amounts
Total amount
1
$0.104167
Cash per financial product $0.075
Supplementary distribution $0.013235
Section 3:
Is the distribution imputed Fully imputed
Partial imputation
No imputation
If fully or partially imputed, please state
imputation rate as % applied
28%
Imputation tax credits per financial
product
$0.029167

Page 2 of 2


Resident withhold tax amount per
financial product
$0.005208
Section 4: distribution re-investment plan (not applicable)
DRP % discount (if any)
Start date and end date for determining
market price for DRP

Date strike price to be announced (if not
available at this time)

Specify source of financial products to
be issued under DRP programme (new
issue or to be bought on market)

DRP strike price per financial product
Last date to submit a participation
notice for this distribution in accordance
with DRP participation terms

Section 5: authority for this announcement
Name of person authorised to make this
announcement
Takeshi Ito – Company Secretary
Contact phone number +64 9 353 5005
Contact email address takeshi.ito@millenniumhotels.com
Date of release via MAP Xx/02/2019

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© 2019 KPMG, a New Zealand partnership and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

Independent Auditor’s Report
To the shareholders of Millennium & Copthorne Hotels New Zealand Limited
Report on the consolidated financial statements
Opinion
In our opinion, the accompanying consolidated
financial statements of Millennium & Copthorne
Hotels New Zealand Limited (the company) and its
subsidiaries (the group) on pages FIN1 to FIN26:
i. present fairly in all material respects the Group’s
financial position as at 31 December 2018 and
its financial performance and cash flows for the
year ended on that date; and
ii. comply with New Zealand Equivalents to
International Financial Reporting Standards and
International Financial Reporting Standards.
We have audited the accompanying consolidated
financial statements which comprise:
— the consolidated statement of financial position
as at 31 December 2018;
— the consolidated statements of comprehensive
income, changes in equity and cash flows for
the year then ended; and
— notes, including a summary of significant
accounting policies and other explanatory
information.

Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (New Zealand) (‘ISAs (NZ)’). We
believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
We are independent of the group in accordance with Professional and Ethical Standard 1 (Revised) Code of
Ethics for Assurance Practitioners issued by the New Zealand Auditing and Assurance Standards Board and the
International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA
Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements and the
IESBA Code.
Our responsibilities under ISAs (NZ) are further described in the auditor’s responsibilities for the audit of the
consolidated financial statements section of our report.
Our firm has also provided other services to the group in relation to taxation compliance, taxation advisory &
scrutineering at the group’s annual meeting of shareholders. Subject to certain restrictions, partners and
employees of our firm may also deal with the group on normal terms within the ordinary course of trading
activities of the business of the group. These matters have not impaired our independence as auditor of the
group. The firm has no other relationship with, or interest in, the group.
Materiality
The scope of our audit was influenced by our application of materiality. Materiality helped us to determine the
nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually
and on the consolidated financial statements as a whole. The materiality for the consolidated financial
statements as a whole was set at $4.1 million determined with reference to a benchmark of group profit before
tax. We chose the benchmark because, in our view, this is a key measure of the group’s performance.

FIN 28
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit
of the consolidated financial statements in the current period. We summarise below those matters and our key
audit procedures to address those matters in order that the shareholders as a body may better understand the
process by which we arrived at our audit opinion. Our procedures were undertaken in the context of and solely
for the purpose of our statutory audit opinion on the consolidated financial statements as a whole and we do not
express discrete opinions on separate elements of the consolidated financial statements
The key audit matter How the matter was addressed in our audit
1. Valuation of Hotel Land and Building assets
Refer to note 9 of the consolidated
financial statements.
Hotel land and buildings of $509.5
million (representing 70% of net
assets) are recognised at fair value in
the financial statements. To
establish fair value, each hotel is
required to undergo an independent
valuation on a tri-annual basis. In the
intervening years, management
complete an impairment
assessment, and assess whether
the carrying value of each hotel
continues to reflect fair value.
The valuations and impairment
assessments are based on
discounted future cashflow models
which include a number of
assumptions taking into
consideration future economic and
market conditions. The key
assumptions (including forecast
growth, occupancy rates and
revenue per available room) are
inherently judgemental and
consequently a change in the
assumptions could have a material
impact on the valuations and the
carrying value of the hotel land and
buildings.
Our procedures on the independently valued hotels involved the
following:
- Using our own valuation specialist to assist us in assessing the
appropriateness of the valuation model used, including
compliance with relevant accounting standards and alignment
to market practice.
- We assessed the scope of work performed, competency,
professional qualifications and experience of the external
expert engaged by the group.
- We challenged the key assumptions used within each valuation
in determining the fair value of these hotel assets. This
included a comparison of occupancy rates, revenue per
available room, market growth and expected inflation with
externally derived data including external hotel industry reports.
- We also performed our own assessment of other key inputs
such as estimated future costs, discount rates and terminal
multipliers, and considered the external expert’s estimates
with historical hotel performance.
- We performed sensitivities and break-even analysis on the key
assumptions.
Our testing indicated that the estimates and assumptions used were
reasonable in the context of the group’s property portfolio.
For those hotels assets that were not valued within the tri-annual
valuation cycle, management assessed these assets for impairment,
and assessed whether their carrying value continues to reflect fair
value.
- We considered management’s impairment assessment of
each hotel’s recoverable amount. This included comparing
actual hotel performance to previous forecasts.
- Based on this analysis two hotels warranted a detailed
impairment review. For these hotels we challenged the key
assumptions used in determining the recoverable amount of
the hotel land and buildings. We also considered future
forecasts, comparing these to internal plans and external
market information.
- Three hotels were identified where there were indicators the
property was outperforming expectation compared to
projections in their previous valuations. We challenged key

FIN 29
The key audit matter How the matter was addressed in our audit
assumptions in the cashflow models used by management to
assess that the carrying value of these hotels continues to
reflect fair value.
Our testing indicated that the estimates and assumptions used were
reasonable in the context of the group’s property portfolio.


Other information
The Directors, on behalf of the group, are responsible for the other information included in the entity’s Annual
Report. Other information includes the Chairman’s Review, Managing Director’s Review, disclosures relating to
corporate governance, the financial summary and the other information included in the Annual Report. Our
opinion on the consolidated financial statements does not cover any other information and we do not express
any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent with the
consolidated financial statements or our knowledge obtained in the audit or otherwise appears materially
misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have received the Chairman’s Review and have nothing
to report in regards to it. The Annual Report is expected to be made available to us after the date of this
Independent Auditor's Report and we will report the matters identified, if any, to those charged with governance.
Use of this independent auditor’s report
This independent auditor’s report is made solely to the shareholders as a body. Our audit work has been
undertaken so that we might state to the shareholders those matters we are required to state to them in the
independent auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the shareholders as a body for our audit work, this independent
auditor’s report, or any of the opinions we have formed.
Responsibilities of the Directors for the consolidated financial
statements
The Directors, on behalf of the company, are responsible for:
— the preparation and fair presentation of the consolidated financial statements in accordance with generally
accepted accounting practice in New Zealand (being New Zealand Equivalents to International Financial
Reporting Standards) and International Financial Reporting Standards;
— implementing necessary internal control to enable the preparation of a consolidated set of financial
statements that is fairly presented and free from material misstatement, whether due to fraud or error; and
— assessing the ability to continue as a going concern. This includes disclosing, as applicable, matters related
to going concern and using the going concern basis of accounting unless they either intend to liquidate or to
cease operations, or have no realistic alternative but to do so.

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CHAIRMAN’S REVIEW

Financial Performance & Financial Position

Millennium & Copthorne Hotels New Zealand Limited (NZX:MCK) is pleased to report a profit
attributable to owners of the parent of $49.4 million (2017: $43.1 million) for the year ended 31
December 2018.
MCK’s revenue for the year increased to $218.8 million (2017: $187.3 million) and profit before tax and
non-controlling interests totaled $85.1 million (2017: $74.9 million) reflecting positive hotel performance.
Together with the contribution from majority-owned residential property developer CDL Investments
New Zealand Limited, earnings per share increased to 31.21 cents per share (2017: 27.25 cents per
share).
Shareholders’ funds excluding non-controlling interests as at 31 December 2018 totaled $640.3 million
(2017: $588.9 million). MCK’s total assets at 31 December 2018 was $898.2 million (2017: $828.2
million) with net asset backing (with land and building revaluations and before distributions) as at 31
December 2018 also increasing to 404.41 cents per share (2017: 371.96 cents per share).

New Zealand Hotel Operations
It was pleasing to see further improvements in hotel revenue growth in 2018 which reflected both
tourism growth and MCK’s competitiveness. Our Gross Operating Profit increased by 21.7% with a
1.9 % point increase in total occupancy throughout the New Zealand Hotels. Both increases reflect
positive contributions from M Social Auckland and Millennium Hotel New Plymouth Waterfront and the
overall results were underpinned by the steady performances from MCK’s Queenstown and Rotorua
hotels throughout the year.

Tourism is tied to international events, both positive and negative but even more so in New Zealand
given its location. New Zealand is particularly sensitive to negative wealth effects from the economies
of our visitor countries. However domestic conditions have had more significant impacts on the
accommodation sector in 2018 and will continue into 2019. The tight supply of skills continues and
changes to the immigration policies on work visas have not helped. These have immediate flow through
effects on the quality of service and costs of doing business going beyond wage or salary rates.

Another domestic dampener affecting our cost of doing business is the Auckland Council’s
Accommodation Provider Targeted Rate (APTR) continues to impact the performance and profitability
of MCK’s Auckland hotels. The cost of the council rates, including APTR, to MCK in 2018 was 63%
more in 2018 than the previous year. To-date council rates have increased by 109% from 2016
before the APTR was imposed. This targeted rate, used to fund ATEED activities, cannot be passed
through to guests as Council had anticipated erroneously. The direct effect of the APTR is the erosion
of our operational productivity gains we have made.

The judicial review action initiated by various Auckland hotel owner / operators to which MCK is a party
is now well advanced and will be heard in the High Court later in 2019.

2019 will see new challenges for tourism and accommodation providers across New Zealand.
Increased inventory in key markets such as Auckland will drive new competitive pressures from new
entrants and existing operators. These international and domestic shifts necessitates on an urgent
change in managing costs and revenue in 2019 and into 2020.

CDL Investments New Zealand Limited (“CDLI”)

CDLI continued to perform strongly announcing another record operating profit after tax for the year
ended 31 December 2018 of $33.6 million (2017: $32.2 million). Although it has seen signs of markets
starting to slow down in some areas, CDLI is well positioned for the medium term having acquired
additional land for development during 2018 and has a good pipeline of sections for sale across New
Zealand.
CDLI maintained its ordinary dividend at 3.5 cents per share which MCK will take in cash when paid in
May this year.

Australia Update

During 2018, two apartments at the Zenith Residences were sold and further units are being advertised
for sale progressively as their leases come to an end. The rooftop penthouse area is also available for
sale. Of the remaining leased apartments, occupancy continued to be positive at 98%. The Board is
targeting further sales in 2019.

Dividend Announcement

In view of the improved result in 2018, MCK’s Board has resolved to declare and pay all shareholders
a fully imputed dividend of 7.5 cents per share (2017: 6.0 cents per share). The increased dividend
reflects a sound trading result over the past 12 months, feedback from shareholders and the Board’s
progressive dividend policy.
The dividend, payable to all shareholders, will be paid on 17 May 2019. The record date will be 10 May
2019.

Outlook

Although there are significant challenges ahead, the Board is confident that MCK will do well in 2019.
We remain positive about the year ahead and expect growth in 2019 although slower.


On behalf of the Board, I would like to thank all of MCK’s management and staff for their work in 2018.



Colin Sim
Chairman
13 February 2019

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13 February 2019



MILLENNIUM & COPTHORNE HOTELS NEW ZEALAND
REPORTS A POSITIVE 2018 RESULT

Millennium & Copthorne Hotels New Zealand Limited (NZX: MCK) today reported its preliminary results
for the year ended 31 December 2018 and announced a profit after tax and attributable to owners of
the parent of $49.4 million (2017: $43.1 million) on total revenue of $218.8 million (2017: $ 187.3 million).

“MCK’s 2018 results reflect the growth of the New Zealand tourism and property markets over the last
year with significant contributions from two hotel investments”, said MCK’s Chair Colin Sim.

MCK also reported increases in its occupancy, gross profit and yield across its hotel portfolio which
were assisted by contributions from its M Social Auckland and the acquisition of Millennium Hotel
Waterfront New Plymouth. The steady growth in the company’s hotels in Rotorua and Queenstown
underpinned the performance of its hotels and MCK’s majority-owned property development subsidiary
CDL Investments New Zealand Ltd delivered its ninth year of profit growth despite a slowing of the
residential property market.

While pleased with the positive results, MCK’s Managing Director BK Chiu highlighted some challenging
factors that MCK had had to deal with over the past year.

“Costs have escalated eroding much of the productivity gains we have made in 2018. The doubling of
local body rates since 2016 primarily due to the targeted rate on Auckland accommodation providers
has eroded productivity gains achieved by our operations. New work visa policies have squeezed
availability of labour in the hospitality industry which is already very tight. Add to that the cross currents
from overseas and uncertainty in a cyclical tourism sector is hardly surprising”, he said.

Mr. Chiu said that 2019 would see additional challenges in the form of increased inventory in key
markets such as Auckland.

”There will be more competition. But we are up to the challenge. The diversity and competitiveness of
our portfolio of well-located hotels across New Zealand and the agility of our operations to flex costs
and revenues will be key in 2019. Our two new hotels, M Social Auckland and Millennium Waterfront,
New Plymouth, together with further sales of the Zenith Apartments in Sydney will help manage MCK’s
growth into the next cycle,” he added.

Reflecting its 2018 results, MCK has resolved to declare an increased and fully imputed dividend of 7.5
cents per share to all shareholders (2017: 6.0 cents per share). The dividend will be paid to shareholders
on 17 May 2019. The record date will be 10 May 2019.

13 February 2019
Summary of results:
• Profit after tax and non-controlling interests $49.4 million (2017: $43.1m)
• Profit before tax and non-controlling interests $85.1 million (2017: $74.9m)
• Group revenue $218.8 million (2017: $187.3m)
• Shareholders’ funds excluding non-controlling interests $640.3 million (2017: $588.9m)
• Total assets $898.2 million (2017: $828.2m)
• Earnings per share (cents per share) 31.21 cents (2017: 27.25 cents)


ENDS
Issued by Millennium & Copthorne Hotels New Zealand Limited
Enquiries to:
B K Chiu
Managing Director
(09) 353 5058