MCK 2020 Interim Results

Millennium & Copthorne Hotels New Zealand Limited and Subsidiaries
Condensed Interim Income Statement
FOR THE SIX MONTHS ENDED 30 JUNE 2020UnauditedUnaudited
6 months6 months
DOLLARS IN THOUSANDSNOTEto 30/06/20to 30/06/19
Revenue84,743 110,611
Cost of sales(39,260) (46,512)
Gross profit45,483 64,099
Other incomeOther income4OIN
Administrative expenses(10,416) (12,157)
Other operating expenses(9,674) (11,376)
Operating profit before finance income25,393 40,566
Finance income1,881 1,874
Finance costs(1,017) (1,441)
Net finance income864 433
Profit before income tax26,257 40,999
Income tax expense9 (b)(7,367) (11,301)
Income tax credit arising from change in building depreciation9 (b)20,060 -
Profit for the period38,950 29,698
Profit for the period attributable to:
Equity holders of the parent34,090 23,805
Non-controlling interests4,860 5,893
Profit for the period 38,950 29,698
Basic earnings per share (cents)
421.55c15.05c
Diluted earnings per share (cents)421.55c15.05c
The attached notes form part of, and are to be read in conjunction with, these financial statements.
Page 1

Millennium & Copthorne Hotels New Zealand Limited and Subsidiaries
Condensed Interim Statement of Comprehensive Income
FOR THE SIX MONTHS ENDED 30 JUNE 2020UnauditedUnaudited
6 months6 months
DOLLARS IN THOUSANDSNoteto 30/06/20to 30/06/19
Profit for the period38,950 29,698
Other comprehensive income
Items that will not be reclassified to profit or loss
Devaluation of property, plant and equipment
9 ( c )(49,963) (7,565)
- Tax expense on devaluation of property, plant and equipment
9 ( b )13,990 -
(35,973) (7,565)
Items that are or may be reclassified to profit or loss
Foreign exchange translation movements1,350 39
- Tax (expense)/credit on foreign exchange9 ( b )(2) -
1,348 39
Total comprehensive income for the period4,325 22,172
Total comprehensive income for the period attributable to:
Equity holders of the parent(535) 17,098
Non-controlling interests4,860 5,074
Total comprehensive income for the period4,325 22,172
DETAILS OF SPECIFIC RECEIPTS/OUTLAYS, REVENUE/EXPENSES
Classified under:
Administrative expenses
Audit fees(159) (164)
Other operating expenses
Depreciation of Property, Plant & Equipment(4,292) (4,217)
Depreciation of Right-Of-Use Assets (823) (645)
Leasing and rental expenses(84) (106)
Finance income
Interest income1,849 1,868
Foreign exchange gain32 6
Finance costs
Interest expense(499) (867)
Interest expense on lease liability(499) (512)
Foreign exchange loss(4) (62)
The attached notes form part of, and are to be read in conjunction with, these financial statements.
Page 2

Millennium & Copthorne Hotels New Zealand Limited a
nd Subsidiaries
Condensed Interim Statement of Changes in Equity
FOR THE SIX MONTHS ENDED 30 JUNE 2020
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
Share
Revaluation
Exchange
Accumulated
Treasury
Unaudite
d
Non-controlling
Total
DOLLARS IN THOUSANDS
NOTE
Capital
Reserves
Reserves
Losses
Stock
Total
Interests
Equ
ity
Balance at 1 January 2019
383,266

236,999

(3,022)

23,042

(26)

640,259

83,614

723,873

Movement in revaluation reserve
-

(6,746)

-

-

-

(6,746)

(819)

(7,565)

Movement in exchange translation reserve
-

-

39

-

-

39

-

39

Income and expense recognised directly in equity
-

(6,746)

39

-

-

(6,707)

(819)

(7,526)

Profit for the period
-

-

-

23,805

-

23,805

5,893

29,698

Total comprehensive income for the period
-

(6,746)

39

23,805

-

17,098

5,074

22,172

Transactions with owners, recorded directly in equi
ty :
Dividends paid to:
Equity holders of the parent
5
-

-

-

(11,866)

-

(11,866)

-

(11,866)

Non-controlling interests
-

-

-

-

-

-

(3,691)

(3,691)

-

-

-

(1)

-

(1)

511

510

Supplementary dividends
5
-

-

-

(311)

-

(311)

-

(311)

Foreign investment tax credits
-

-

-

311

-

311

-

311

Balance at 30 June 2019
383,266

230,253

(2,983)

34,980

(26)

645,490

85,508

730,998

Balance at 1 January 2020
383,266

274,495

(3,319)

60,837

(26)

715,253

91,747

807,000

Movement in revaluation reserve
-

(35,973)

-

-

-

(35,973)

-

(35,973)

Movement in exchange translation reserve
-

-

1,348

-

-

1,348

-

1,348

Income and expense recognised directly in equity
-

(35,973)

1,348

-

-

(34,625)

-

(34,625)

Profit for the period
-

-

-

34,090

-

34,090

4,860

38,950

Total comprehensive income for the period
-

(35,973)

1,348

34,090

-

(535)

4,860

4,325

Transactions with owners, recorded directly in equi
ty :
Dividends paid to:
Equity holders of the parent
5
-

-

-

(11,866)

-

(11,866)

-

(11,866)

Non-controlling interests
-

-

-

-

-

-

(3,679)

(3,679)

-

-

-

(49)

-

(49)

1,329

1,280

Supplementary dividends
5
-

-

-

(256)

-

(256)

-

(256)

Foreign investment tax credits
-

-

-

256

-

256

-

256

Balance at 30 June 2020
383,266

238,522

(1,971)

83,012

(26)

702,803

94,257

797,060

Attibutable to Equity Holders of the Group
The attached notes form part of, and are to be read
in conjunction with, these financial statements.
Movement of non-controlling interests without a cha
nge in
controlMovement of non-controlling interests without a cha
nge in
control
Page 3

Millennium & Copthorne Hotels New Zealand Limited and Subsidiaries
Condensed Interim Statement of Financial Position
AS AT 30 JUNE 2020UnauditedAuditedUnaudited
as atas atas at
DOLLARS IN THOUSANDSNOTE30/06/2031/12/1930/06/19
SHAREHOLDERS' EQUITY
Issued capital3383,266 383,266 383,266
Reserves319,561 332,013 262,250
Treasury stock3(26) (26) (26)
Non-controlling interests94,259 91,747 85,508
Total equity797,060 807,000 730,998
Represented by:
NON CURRENT ASSETS
Property, plant and equipment
9 ( c )539,953 591,749 539,492
Development properties 169,250 176,579 186,216
Investment in associates2 2 2
Total non-current assets709,205 768,330 725,710
CURRENT ASSETS
Cash and cash equivalents26,301 43,182 25,441
Short term bank deposits156,045 122,049 116,812
Trade and other receivables13,263 21,138 14,296
Trade receivables due from related parties
6206 - 10
Loans due from related parties- - -
Inventories1,315 1,615 1,518
Development properties48,705 51,887 41,377
Total current assets245,835 239,871 199,454
Total assets955,040 1,008,201 925,164
NON CURRENT LIABILITIES
Interest-bearing loans and borrowings67,000 67,000 64,000
Lease Liabilities14,219 14,370 14,541
Provision for deferred taxation
9 ( b )50,535 84,968 75,972
Total non-current liabilities131,754 166,338 154,513
CURRENT LIABILITIES
Interest-bearing loans and borrowings297 - 3,000
Trade and other payables9 ( b )19,084 24,562 22,431
Trade payables due to related parties
64,743 4,054 3,686
Loans due to related parties- - 9,000
Lease Liabilities472 429 411
Income tax payable1,630 5,818 1,125
Total current liabilities26,226 34,863 39,653
Total liabilities157,980 201,201 194,166
Net assets797,060 807,000 730,998
Net Asset Backing before Distributions (cents per share)
The attached notes form part of, and are to be read in conjunction with, these financial statements.
Page 4

Millennium & Copthorne Hotels New Zealand Limited and Subsidiaries
Condensed Interim Statement of Cash Flows
FOR THE SIX MONTHS ENDED 30 JUNE 2020UnauditedUnaudited
6 months6 months
DOLLARS IN THOUSANDSNOTEto 30/06/20to 30/06/19
CASH FLOWS FROM OPERATING ACTIVITIES
Cash was provided from:
Receipts from customers92,404 115,797
Interest received1,858 2,242
94,262 118,039
Cash was applied to:
Payments to suppliers and employees(47,010) (66,182)
Purchase of development land- (7,624)
Interest paid(655) (900)
Income tax paid(11,977) (17,017)
(59,642) (91,723)
Net cash inflow from operating activities34,620 26,316
CASH FLOWS FROM INVESTING ACTIVITIES
Cash was provided from/(applied to):
Purchase of property, plant and equipment(3,167) (3,037)
Increase in short term bank deposits(33,996) (8,523)
Net cash outflow from investing activities(37,163) (11,560)
Drawdown of borrowings297 3,000
Advance/(repayment) of related parties loans- 9,000
Principal repayment of lease liability(720) (676)
Dividends paid to shareholders of Millennium & Copthorne
Hotels New Zealand Ltd
5(11,866) (11,866)
Dividends paid to non-controlling interests (3,679) (3,691)
Net cash outflow from financing activities(15,968) (4,233)
Net (decrease)/increase in cash and cash equivalents(18,511) 10,523
Add opening cash and cash equivalents43,182 14,437
Exchange rate adjustment1,630 481
Closing cash and cash equivalents26,301 25,441
The attached notes form part of, and are to be read in conjunction with, these financial statements.
Page 5

Millennium & Copthorne Hotels New Zealand Limited and Subsidiaries
Condensed Interim Statement of Cash Flows
FOR THE SIX MONTHS ENDED 30 JUNE 2020UnauditedUnaudited
6 months6 months
DOLLARS IN THOUSANDSNOTEto 30/06/20to 30/06/19
RECONCILIATION OF NET PROFIT FOR THE PERIOD
TO CASH FLOWS FROM OPERATING ACTIVITIES
Profit for the period38,950 29,698
Adjusted for non cash items:
(Gain)/Loss on Sale of Fixed Assets- 6
Foreign Exchange (Gain)/ Loss(28) 56
Depreciation of Property, Plant & Equipment4,290 4,217
Depreciation of Right-Of-Use Assets 823 645
Income tax expense / (credit)
9 (b)(12,693) 11,301
Adjustments for movements in working capital:
Decrease in receivables7,670 5,560
Decrease in inventories300 166
(Increase)/Decrease in development properties11,576 (7,449)
Increase/(Decrease) in payables(4,325) (1,289)
Increase/(Decrease) in related parties689 1,322
Cash generated from operations47,252 44,233
Interest paid(655) (900)
Income tax paid(11,977) (17,017)
Net cash inflow from operating activities34,62026,316
Reconciliation of movement of liabilities to cash flows arising
from financing activities
As at 01 Jan 67,000 64,000
Proceeds from borrowings297 3,000
Financing cash flows297 3,000
As at 30 Jun 67,297 67,000
The attached notes form part of, and are to be read in conjunction with, these financial statements.
Page 6

Page 7

Millennium & Copthorne Hotels New Zealand Limited and Subsidiaries
Notes to the Condensed Interim Financial Statements
for the six months ended 30 June 2020 (unaudited)


1. Significant accounting policies

Millennium & Copthorne Hotels New Zealand Limited is a company domiciled in New Zealand, registered under the
Companies Act 1993 and listed on the New Zealand Stock Exchange. Millennium & Copthorne Hotels New Zealand
Limited (the “Company”) is a Financial Markets Conduct Reporting Entity in terms of Financial Markets Conduct Act
2013 and the Financial Reporting Act 2013. The condensed interim financial statements of the Company for the six
months ended 30 June 2020 comprise the Company and its subsidiaries (together referred to as the “Group”). The
registered office is located at level 13, 280 Centre, 280 Queen Street, Auckland, New Zealand.

The principal activities of the Group are ownership and operation of hotels in New Zealand; residential development
and sale of land in New Zealand; and development and sale of residential units in Australia.

The condensed interim financial statements were authorised for issuance on 29 July 2020.

(a) Statement of compliance

The condensed interim financial statements have been prepared in accordance with New Zealand Generally Accepted
Accounting Practice (NZ GAAP). They comply with NZ IAS 34 Interim Financial Reporting. The condensed interim
financial statements do not include all of the information required for full annual financial statements.

The accounting policies and methods of computation applied by the Group in these condensed interim financial
statements are the same as those applied by the Group in its financial statements for the year ended 31 December
2019, with the exception of the adoption of NZ IAS 20 Accounting for Government Grants and Disclosure of
Government Assistance in the current reporting period (refer to Note 9(a)).




2. Segment reporting

Segment information is presented in the condensed interim financial statements in respect of the Group’s reporting
segments. Operating segments are the primary basis of segment reporting. The Group has determined that its chief
operating decision maker is the Board of Directors on the basis that it is this group which determines the allocation of
resources to segments and assesses their performance.

Inter-segment pricing is determined on an arm’s length basis. Segment results include items directly attributable to a
segment as well as those that can be allocated on a reasonable basis.

Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected
to be used for more than one period.

Operating segments
The Group consisted of the following main operating segments:
• Hotel operations, comprising income from the ownership and management of hotels.
• Residential land development, comprising the development and sale of residential land sections.
• Residential property development, comprising the development and sale of residential apartments.

Geographical segments
The Group operates in the following main geographic segments:
• New Zealand
• Australia

Segment revenue is based on the geographical location of the asset. The Group has no major customer representing
greater than 10% of the Group’s total revenue.

Page 8

Millennium & Copthorne Hotels New Zealand Limited a
nd Subsidiaries
Notes to the Condensed Interim Financial Statements

for the six months ended 30 June 2020 (unaudited)

2.
Segment reporting -
continued
(a) Operating Segments

Hotel Operations
Residential Land
Development
Residential Property
Development
Group

Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
U
naudited
Unaudited
Unaudited

6 months
6 months
6 months
6 months
6 months
6 mont
hs
6 months
6 months
Dollars in thousands
to 30/06/20
to 30/06/19
to 30/06/20
to 30/06/19
to
30/06/20
to 30/06/19
to 30/06/20
to 30/06/19
External revenue
35,755
64,463
40,955
40,291
8,033
5,857
84,743
110,
611
Earnings before interest, depreciation & amortisation
8,582
22,636
18,589
20,494
3,337
2,298
30,508
45,42
8
Finance income
1,221
1,172
504
524
156
178
1,881
1,874
Finance expense
(1,015)
(1,437)
(1)
(2)
(1)
(2)
(1,017)
(1,441)
Depreciation and amortisation
(4,287)
(4,212)
-
-
(5)
(4)
(4,292)
(4,216)
Depreciation of Right-of-use assets
(811)
(634)
(7)

(7)
(5)
(5)
(823)
(646)
Profit before income tax
3,690
17,525
19,085
21,009
3,482
2,465
26,257
40,99
9
Income tax expense
(979)
(4,720)
(5,344)
(5,873)
(1,044)
(708)
(7,367)

(11,301)
Income tax credit arising from change in building depreciation
20,060
-
-
-
-
-
20,060
-
Profit after income tax
22,771
12,805
13,741
15,136
2,438
1,757
38,950
29,6
98









Segment assets
638,991
638,961
244,037
220,560
72,010
65,641
955,0
38
925,162
Investment in associates
-
-
2
2
-
-
2
2
Total assets
638,991
638,961
244,039
220,562
72,010
65,641
955,0
40
925,164









Segment liabilities
(102,470)
(112,922)
(1,755)
(2,955)
(1,590)
(1,192)

(105,815)
(117,069)
Tax liabilities
(49,347)
(75,704)
(1,511)
(1,135)
(1,307)
(258)
(52
,165)
(77,097)
Total liabilities
(151,817)
(188,626)
(3,266)
(4,090)
(2,897)
(1,450)

(157,980)
(194,166)









Property, plant and equipment expenditure
3,157
3,0
25
6
2
5
10
3,168
3,037
Residential land development expenditure
-
-
11,841

19,874
-
-
11,841
19,874
Purchase of land for residential land development
-

-
-
7,624
-
-
-
7,624

Page 9

Millennium & Copthorne Hotels New Zealand Limited a
nd Subsidiaries
Notes to the Condensed Interim Financial Statements

for the six months ended 30 June 2020 (unaudited)
2.
Segment reporting -
continued



(b) Geographic Segments
New Zealand
Australia
Group

Unaudited
Unaudited
Unaudited
Unaudited
Unaudited
U
naudited

6 months
6 months
6 months
6 months
6 months
6 mont
hs
Dollars in thousands
to 30/06/20
to 30/06/19
to 30/06/20
to 30/06/19
to
30/06/20
to 30/06/19
External revenue
70,716
104,754
8,033
5,857
84,743
110,611
Earnings before interest, depreciation & amortisation
27,184
43,215
3,324
2,213
30,508
45,428
Finance income
1,725
1,696
156
178
1,881
1,874
Finance expense
(1,016)
(1,439)
(1)
(2)
(1,017)
(1,441)
Depreciation and amortisation
(4,287)
(4,212)
(5)
(4)
(4,292)
(4,216)
Depreciation of Right-of-use assets
(818)
(641)
(5)
(5)
(823)
(646)
Profit before income tax
22,788
38,619
3,469
2,380
26,257
40,999
Income tax expense
(6,326)
(10,596)
(1,041)
(705)
(7,367)
(11,301)
Income tax credit arising from change in building d
epreciation
20,060
-
-
-
20,060
-
Profit after income tax
36,522
28,023
2,428
1,675
38,950
29,698







Segment assets
883,333
859,742
71,705
65,420
955,038
925,162
Investment in associates
2
2
-
-
2
2
Total assets
883,335
859,744
71,705
65,420
955,040
925,164







Segment liabilities
(104,263)
(115,918)
(1,552)
(1,151)
(105,815)
(117,
069)
Tax liabilities
(50,859)
(76,839)
(1,306)
(258)
(52,165)
(77,097)
Total liabilities
(155,122)
(192,757)
(2,858)
(1,409)
(157,980)
(194,
166)







Property, plant and equipment expenditure
3,163
3,027
5
10
3,168
3,037
Residential land development expenditure
11,841
19,874
-
-
11,841
19,874
Purchase of land for residential land development
-
7,624
-
-
-
7,624

Page 10


Millennium & Copthorne Hotels New Zealand Limited and Subsidiaries
Notes to the Condensed Interim Financial Statements
for the six months ended 30 June 2020 (unaudited)


3. Share capital


Ordinary shares Redeemable preference shares
Shares $ 000s Shares $ 000s
Total shares issued – fully paid

Balance at 30 June 2019 105,578,290 350,048 52,739,543 33,218
Balance at 30 June 2020 105,578,290 350,048 52,739,543 33,218


Ordinary shares repurchased and held as
treasury stock



Balance at 30 June 2019 (99,547) (26) - -
Balance at 30 June 2020 (99,547) (26) - -


Shares issued – fully paid

Balance at 30 June 2019 105,478,743 350,022 52,739,543 33,218
Balance at 30 June 2020 105,478,743 350,022 52,739,543 33,218



At 30 June 2020, the authorised share capital consisted of 105,578,290 ordinary shares (2019: 105,578,290 ordinary
shares) with no par value and 52,739,543 redeemable preference shares (2019: 52,739,543) with no par value.




4. Earnings per share

The basic earnings per share of 21.55 cents (30 June 2019: 15.05 cents) is based on the profit attributable to ordinary
shareholders of $34.09 million (30 June 2019: $23.81 million) and weighted average number of ordinary shares and
redeemable preference shares outstanding during the period ended 30 June 2020 of 158,218,286 (30 June 2019:
158,218,286).

The redeemable preference shares are included in the computation of earnings per share as they rank equally with
ordinary shares in respect of distributions made by the Company except any distribution in the case of liquidation.

The calculation of diluted earnings per share of 21.55 cents (30 June 2019: 15.05 cents) is the same as basic earnings
per share.



5. Dividends

The following dividends were paid during the interim periods:



Group
Dollars In Thousands
Unaudited
30/06/20
Unaudited
30/06/19


Ordinary dividend: 7.5 cents per qualifying share (2019: 7.5 cents) 11,866 11,866
Supplementary dividend: 1.3235 cents per qualifying share (2019:
1.3235 cents)

256

311

12,122 12,177

Page 11


Millennium & Copthorne Hotels New Zealand Limited and Subsidiaries
Notes to the Condensed Interim Financial Statements
for the six months ended 30 June 2020 (unaudited)



6. Related party transactions

Millennium & Copthorne Hotels New Zealand Limited is a 75.78% (2019: 75.78%) (economic interests from both
ordinary and preference shares) owned subsidiary of CDL Hotels Holdings New Zealand Limited which is a wholly
owned subsidiary of Millennium & Copthorne Hotels plc in the United Kingdom. The ultimate parent company is Hong
Leong Investment Holdings Pte Limited in Singapore.


At balance date there were related party advances owing from/(owing to) the following related companies:


Group
Dollars In Thousands
Nature of balance Unaudited
30/06/20
Unaudited
30/06/19
Trade payables and receivables due to
related parties

Millennium & Copthorne Hotels plc Recharge of
expenses
(3,536) (2,791)

Millennium & Copthorne International
Limited
Recharge of
expenses
& provision of
management and
marketing support



176



(27)

CDL Hotels Holdings New Zealand Limited Recharge of
expenses
30 10

CDLH (BVI) One Limited Rent payment (1,207) (868)

(4,538) (3,676)
Loans due to related parties
CDL Hotels Holdings New Zealand
Limited

Inter-company loan
- (9,000)

- (9,000)

No debts with related parties were written off or forgiven during the period. No interest was charged on these payables
during 2020 and 2019. There are no set repayment terms.

As at balance date, inter-company loan with CDL Hotels Holdings New Zealand Limited was NIL (30 June 2019: $9.0
million) .

7. Capital commitments

As at 30 June 2020, the Group has entered into contractual commitments for capital expenditure and development
expenditure.


Group
Dollars In Thousands
Unaudited
30/06/2020
Unaudited
30/06/2019
Capital expenditure 468 4,425
Development expenditure 19,160 21,252
Land purchases 1,272 33,717

20,900 59,394


8. Changes in contingent liabilities and contingent assets since last annual balance sheet date

During the period, the Group settled an outstanding claim from the main contractor of the Copthorne Hotel Harbourcity
City project. The adjudicator determined that the Group had to pay a total of $455.4k to the main contractor, which
included liquidated damages previously deducted from the contractor’s progress payments, an amount for disputed
variation work, interest, and half of the adjudicator’s costs. The total cost of the determination has been recognised
in the financial statements at balance date.

The Group has no other contingent liabilities or contingent assets at balance date.

Page 12

Millennium & Copthorne Hotels New Zealand Limited and Subsidiaries
Notes to the Condensed Interim Financial Statements
for the six months ended 30 June 2020 (unaudited)

9. COVID-19 pandemic update

(a) Wage subsidy scheme
The Group applied for the Government’s Wage Subsidy Scheme on 27 March 2020 and received a net sum of $6.70
million. The Group’s owned and managed hotels were eligible to apply as the hotels suffered a decline of 41.9% in
total revenues in March 2020 against the comparative period in 2019. This amount covered a period of 12 weeks
which ended on 21 June.
The Group subsequently applied for the Wage Subsidy Extension and received a total of $1.82 million which covers
the period from 22 June to 16 August. The Group’s owned and managed hotels were eligible to apply for the
Government’s Wage Subsidy Extension Scheme as the hotels suffered a decline of 58.7% in total revenues in the 30
day period from 24 May to 23 June 2020 against the comparative period in 2019.

The wage subsidies were applied as a deduction against payroll costs in personnel expenses in accordance with NZ
IAS 20. The personnel expenses are included in cost of sales, administration expenses and other expenses in the
income statement.





Personnel expenses



Group
Dollars In Thousands

2020 2019
Wages and salaries
19,962 22,576
Wage subsidies
(5,507) -
Employee related expenses and benefits
464 713
Contributions to defined contribution plans
369 419
Increase/(decrease) in liability for long-service leave
(51) 48
15
1515
15,
,,
,237
237237
237

23
2323
23,
,,
,756
756756
756



The unapplied balance of $1.51m in wage subsidies is included in Trade and other payables under current liabilities
in the Balance Sheet.


(b) Tax changes
Included in the Government’s Business Continuity Package (COVID-19 Response (Taxation and Social Assistance
Urgent Measure) Act 2020) was the reintroduction of tax depreciation on commercial and industrial buildings. With
effect from 1 January 2020, the Group is now able to depreciate, at 2.0% diminishing value method, the core
components of the hotel buildings previously depreciated at 0.0% for tax purposes. As a result, the deferred tax
liability is reduced by $20.06 million with a deferred tax credit of the same amount booked into the profit and loss.



Income tax expense

Recognised in the income statement

Group
Dollars In Thousands
2020 2019
Current tax expense

Current year
7,752 11,173
Adjustments for prior years - -
7,752 11,173

Deferred tax expense


Origination and reversal of temporary difference (385) 129
Change in treatment of building depreciation (20,060) -
Adjustments for prior years - -
(20,445) 129
Total income tax expense/(credit) in the income statement

(12,693) 11,301

Page 13


Millennium & Copthorne Hotels New Zealand Limited and Subsidiaries
Notes to the Condensed Interim Financial Statements
for the six months ended 30 June 2020 (unaudited)


9. COVID-19 pandemic update -continued

Reconciliation of tax expense

Group
Dollars In Thousands
2020 2019
Profit before income tax 26,257 40,999
Income tax at the company tax rate of 28% (2019: 28%) 7,352 11,480
Adjusted for:
Non-deductible expenses - -
Tax rate difference (if different from 28% above) 69 47
Tax exempt income (54) (226)
Change in treatment of building depreciation (20,060) -
Total income tax expense/(credit)
(12,693) 11,301
Effective tax rate (48)% 28%

Deferred tax expense/(credit) recognised in other comprehensive income

Group
Dollars In Thousands
2020 2019
Relating to devaluation of property, plant and equipment (13,990) -
Relating to foreign currency translation of foreign subsidiaries 2 -
(13,988) -

Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the
income statement except to the extent that it relates to items recognised directly in other comprehensive income or
equity, in which case it is recognised in other comprehensive income or equity.



(c) Property, Plant and Equipment
The Group’s hotel properties were subjected to an internal review for fair value at the reporting date.

The basis of the valuation is the net present value of the future earnings of the assets. The major unobservable
inputs and assumptions that are used and require significant judgement in estimating future cash flows include the
expected rate of recovery in revenue, projected occupancy and average room rates, operational and maintenance
expenditure profiles and discount rates (internal rate of return). With the COVID-19 pandemic still at large globally,
the recovery of tourism and accommodation sector is uncertain and is dependent on several factors which are
currently unknown and evolving. These factors chiefly are: the success of health bodies worldwide to control the
pandemic; the recovery of economies in key markets; the opening up of closed borders for international air travel;
and the increase in domestic travel after lockdowns.

Annual growth rates appropriate to the hotels were applied over the five years projection. The average rates from
the current year onwards are: -63.3% (Year 0); 49.0% (Year 1); 41.7% (Year 2); 16.6% (Year 3); 3.5% (Year 4); and
2.2% (Year 5). Pre-tax discount rates ranging between 7.50% and 10.75% were applied to the future cash flows of
the individual hotels based on the specific circumstances of each property.

The Group's fair value of hotel properties is categorised as Level 3 based on the inputs to the valuation methodology.
The following matrix shows the effect of the inputs on the fair value of the properties:



The estimated fair value would
increase
The estimated fair value would
decrease
If forecast future earnings were Higher lower
If projected operational and
maintenance expenditures were
Lower higher
If the discount rates were Lower higher

Based on the review and in accordance with the Group’s accounting policies the respective properties’ land and
buildings were revalued to their fair value. A total of $49.96 million (31 December 2019: $45.70 million increase)
was deducted from the carrying values of land and buildings and the amount after tax was deducted from the asset
revaluation reserves in equity.

---

Results announcement


Millennium & Copthorne Hotels New Zealand Limited (MCK)

Results for announcement to the market
Name of issuer Millennium & Copthorne Hotels New Zealand Limited
Reporting Period 6 months to 30 June 2020
Previous Reporting Period 6 months to 30 June 2019
Currency NZD

Amount (000s) Percentage change
Revenue from continuing
operations
$84,743 (23.39%)
Total Revenue $84,743 (23.39%)
Net profit/(loss) from
continuing operations
$34,090 43.21%
Total net profit/(loss) $34,090 43.21%
Interim Dividend
Amount per Quoted Equity
Security
No interim dividend declared
Imputed amount per Quoted
Equity Security
Not applicable
Record Date Not applicable
Dividend Payment Date Not applicable
Current period Prior comparable period
Net tangible assets per
Quoted Equity Security
$4.44 $4.08
A brief explanation of any of
the figures above necessary
to enable the figures to be
understood
Refer to Shareholder Update
Authority for this announcement
Name of person

authorised
to make this announcement
Takeshi Ito
Contact person for this
announcement
Takeshi Ito
Contact phone number 09 353 5005
Contact email address takeshi.ito@millenniumhotels.com
Date of release through MAP

29 July 2020

Unaudited financial statements accompany this announcement.

---

SHAREHOLDER UPDATE TO 30 JUNE 2020


Dear MCK Shareholders,

It is hard to find the right words to describe the last six months for us all. Many people have used the words
“unprecedented”, “unbelievable”, “like nothing ever seen before”, and other such terms and phrases. All of these are
right but they do not, in our opinion, capture the depth of feeling that we have experienced since early March when the
extent of the COVID-19 pandemic became apparent.

Before outlining our results and financial position to 30 June 2020, we would like to say thank you on behalf of all of
the Board to all of our staff, past and present, who have gone through so much over the last few months. To those
who we have had to let go, please know that the decisions we made were made with regret and because we have to
act in the best interests of this company. We can say that our Senior Leadership team have done what they can to
retain as many employees as possible but without the level of guests and with the borders to New Zealand closed to
overseas travel since March and for the foreseeable future, we do not and will not have anywhere near the amount of
business to sustain pre-COVID employment levels. There is no “normal” any more and predictions of a “new normal”
seem premature.

To our staff that remain and particularly our Hotel General Managers and Senior Leadership team, we thank you for
your ongoing efforts and the extra yards to keep MCK a viable business. We know that the road ahead is challenging
but with your dedication to the tasks ahead, we are sure that we can return to better days in the not-too-distant future.

To our suppliers and business partners, thank you for your loyalty to MCK over these last few weeks and months. Over
the last few months, we have reached out to you to ask for assistance in various forms and we are grateful for that
support. Our strengths are built on long-standing relationships and we hope to continue and build on those relationships
into the future.

To our shareholders, we thank you also for your ongoing support of the company. To those of you in New Zealand in
particular, we hope that you are able to make our hotels your first choice for accommodation as domestic travel starts
to increase across the country. By booking direct through our website or by contacting the hotels directly, you will be
assured of the best rates and you will also ensure that all of what you pay goes directly to the hotels and not to offshore
agents. At a time where literally every cent and every dollar makes a difference, we look forward to welcoming you
and your families and friends at our hotels.


Results summary

MCK as a group made an unaudited profit before tax and non-controlling interests of $26.26 million for the six month
period ended 30 June 2020 (2019: $41.00 million). The main contributor to these results were sales of residential
sections from our majority-owned subsidiary CDL Investments New Zealand Limited which traded well in the last six
months. In addition, one sale of a sub-penthouse at the Zenith Residences in Sydney which settled during this period
has also helped our overall result.

As a result of these property sales and a one-off non-cash tax credit of $20.06 million arising out of the Government’s
COVID-19 Business Continuity Package, MCK has recorded a profit after income tax and non-controlling interests of
$34.09 million (2019: $23.81 million) The group revenue and other income for this period were $84.74 million (2019:
$110.61 million). However, earnings per share for the period increased to 21.55 cents per share (2019: 15.05 cps)
reflecting the impact of the tax credit from the COVID-19 Business Continuity Package. This has also impacted on
MCK’s Net Tangible Assets per share as at 30 June 2020 which was $4.44 per share (2019: $4.08 per share).


An update on our New Zealand Hotel Operations

For the first six months of 2020, MCK’s hotel operations made a pretax profit of $3.69 million (2019: $17.53 million).
While this is better than what we expected in March, it does not indicate that a sustainable recovery is underway. These
results show the combined effects of positive trading in the first two months of the year, the contribution to wages from
the Government’s Wage Subsidy and some small increases in revenue after lockdown.

As stated above, MCK’s hotel operations booked a one-off, non-cash, tax credit of $20.06 million as a result of the
Government’s COVID-19 Business Continuity Package which reintroduced the ability to depreciate non-residential
buildings from the 2020/21 income year. Long term shareholders may recall the one-off, non-cash, tax expense of
$24.61 million in 2010 when the previous Government removed the ability to depreciate non-residential buildings for
the first time.

It is worth reflecting on what has happened over the past six months, particularly in March through to May. Aside from
the Alert Level 4 lockdown, the most significant issue we faced was when the Government announced that the borders

would be closed to all international visitors on 14 March. The impact of that alone would have severely impacted on
MCK’s 2020 results in any event and was serious enough to request a trading halt from NZX.

Even with favourable trading in January and February this year which was comparable to 2019 levels, there was a
sharp reduction in revenue in Q1 2020 with revenue down by 16% and pre-tax profit down by 34%. Q2 saw the full
effect of the lockdown with revenue falling by 86% and pre-tax profit down by 301%.

Like every other business in New Zealand, the effects of the Alert Level 4 lockdown from 26 March through to 28 April
was severe. Only two owned / operated hotels and two franchised hotels were open for essential business and workers
with the remainder closed until Alert Level 3 allowed for back-of-house operations to resume. Only from the start of
Alert Level 2 on 13 May could hotels actually receive guests for the first time since lockdown and then only once social
distancing measures had been put in place. Even then, domestic travel was under restrictions. In short, nearly all of
our hotels had no revenue at all during April and half of May.

While all social distancing measures are no longer necessary and hotels can operate in a pre-COVID-like manner there
is no way that business would resume at levels seen prior to March. Unlike retail, hotels and other tourism business
are not able to recover straight away. As of today, Copthorne Hotel & Resort Bay of Islands, Copthorne Hotel Rotorua,
Kingsgate Hotel Greymouth and Kingsgate Hotel Te Anau will remain closed until the fourth quarter of this year. All of
our other hotels are open and accepting bookings.

With MCK, the market for domestic tourism has always been smaller than the international one and what we have seen
post-lockdown is intense discounting and price competition as hotels and motels try to attract as many people as they
can. Put bluntly, hotels in New Zealand are all in survival mode and will remain that way for an extended period of
time.

Understandably, our customers both in New Zealand and overseas have cancelled nearly all of their bookings for the
remainder of 2020. Thus, we are faced with the prospect of having to rebuild our business more or less from scratch.
As the pandemic continues to severely impact our key overseas markets such as Australia, the United States, the
United Kingdom, China and Europe, we are not confident that we will see even a trans-Tasman travel bubble this year.
Until we know when our borders reopen and which countries will qualify, people will not be rebooking their stays.
Coupled with a difficult economic environment, we know that people worldwide will be reluctant to travel internationally.
It will take several years to recover to the levels of business over the past five years. But we know this and we are
planning accordingly the financial runway at each hotel and corporate levels. As we said at the Annual Meeting in May,
MCK will survive this crisis.

The effect on our staff has been dramatic and this is something we have tried to keep front of mind in terms of our
operational decisions over the last few months. Regrettably, we have had to make difficult decisions affecting hundreds
of our staff who have had to take redundancy, reductions of salary or reduced hours. Like the Government’s response
to the pandemic, we also adopted an “act early” strategy as we believed that the likely effect of the loss of visitors and
revenue would be close to catastrophic. As painful as those decisions were for all of us, we strongly maintain they
were the right decisions to ensure our business survived.

We also applied for and received $6.70 million in the first round of the Government’s Wage subsidy programme which
allowed us to keep paying our employees all of their contracted hours or salaries through to June while we undertook
the right-sizing of our business. We applied for the Wage Subsidy Extension and have now received a further $1.82
million and we have used the funds in the way the Government has intended to ensure that as many people as possible
have been able to keep their jobs.

As has been widely reported, two of MCK’s hotels have been undertaking managed isolation facility business in the
first half of 2020, being the Grand Millennium (managed by a wholly owned subsidiary of MCK) and M Social Auckland.
The decision to do so was made after carefully assessing the risks to staff and our future business. We believed that
this was the right decision, not only to help New Zealanders returning home from overseas, but to keep these hotels in
operation and to retain our staff as well. Strict health and safety protocols including deep cleaning procedures have
been followed at both properties. Both hotels will continue with managed isolation business during the second half of
2020.

Refurbishment work is nearly complete at the Copthorne Hotel & Resort Queenstown Lakefront and we expect that the
hotel will reopen for business in Q4 2020. Demolition work on part of the Kingsgate Hotel Greymouth will also
commence shortly ahead of a refurbishment of the tower block of that hotel with the aim to rebrand as a Copthorne
Hotel once all works are completed in 2021.


CDL Investments New Zealand Limited (‘CDL’) performance

Pleasingly, CDL announced an unaudited operating profit after tax for the six months ended 30 June 2020 of $13.74
million (2019: $15.10 million). The result reflected positive sales activity from its new Auckland subdivision at Kewa
Road and Prestons Park in Christchurch. CDL’s forecast sales for the remainder of the year are positive and their
results will deliver a welcome boost to MCK’s overall results this year.


Australia update:

We are also pleased to report that a sub-penthouse floor at the Zenith Residences, Sydney was sold in the first half of
the year and an agreement for the penthouse level has been signed and is due to settle before the end of the financial
year. This is in line with our forecasts and will also strengthen our end of year results. These sales will also reduce
our operating expenses in Australia.

The outlook for the remainder of 2020

No-one should be in any doubt that the outlook ahead for MCK’s New Zealand hotel operations will continue to be grim.
The reality for the foreseeable future is lower occupancy, lower margins and minimal profit. We also believe that we
have not yet seen the full extent of the economic effects of COVID-19. As economic conditions globally get worse, we
expect still further falls in demand for travel and accommodation as people tighten their belts once again. The
announcement that the APEC 2021 Leaders Meetings and associated events are to shift to virtual meetings is one
indication as to where things are likely to head for our traditional conferencing and meetings business in the immediate
term.

While we are aiming to reopen all of our hotels by the end of the year, this should not be taken as a certainty given that
we do not know when our borders will be reopened to the rest of the world. Even when New Zealand is able to welcome
visitors from overseas, we will be taking a cautious approach to ensure that we do not compromise the health, safety
and wellbeing of our staff and guests.

On a positive note, MCK is not just a hotel company. As a “property company with hotel assets” any growth and indeed
any profit, for the time being, will come from our property divisions in New Zealand and Australia. While they have not
been as badly affected by COVID-19 as our hotel operations, we remain optimistic but cautious that sales will continue
as forecast. Should market conditions change, both divisions are agile enough to adjust their operations as needed.

As well as ensuring that our hotel operations survive this difficult period, as a group, MCK is aiming to deliver an overall
result that will see a profit, but we caution shareholders to moderate their expectations. To achieve an overall profit in
this environment remains a challenge and is also dependent on many factors, several of which are outside our control.
We are well aware of the enormity of the task ahead and we are committed to achieving our goal.

Again, to our staff and shareholders, thank you. We look forward to your continued support over the coming months
and beyond.





Colin Sim BK Chiu
Chairman Managing Director
29 July 2020