Millennium & Copthorne Hotels New Zealand Limited Analysis

Overview

Millennium & Copthorne Hotels New Zealand Limited is currently the only hotel owner / operator listed on the NZSX. It currently has 18 hotels across New Zealand trading under the Millennium / Grand Millennium / M Social, Copthorne and Kingsgate brands.

MCK developed into its current form in 1992 when it became a subsidiary of the Millennium & Copthorne Group (then known as CDL Hotels International) and acquired 21 hotels. Over the ensuing two decades, it has maintained its position as one of the largest hotel owner / operators in New Zealand.

MCK has a majority stake in NZSX-listed CDL Investments New Zealand Limited (NZX:CDI) and also has property interests in Australia through its Kingsgate Group subsidiaries.

Performance

The following information was extracted from Millennium & Copthorne Hotels New Zealand Limited's half year report, released 7 August 2024:

New Zealand hotel owner and operator, Millennium & Copthorne Hotels New Zealand Limited (MCK), has today announced its unaudited results for the six months to 30 June 2024 and reported revenue growth of 42% and an increase in net profit before tax of 88% compared to the same period last year.

As announced last week, MCK recognised a one-off non-cash deferred tax liability adjustment amounting to $25.76m which arose from a change in tax legislation that came into effect this year and relates to the depreciation of buildings owned by MCK. The effect of the adjustment, which does not affect MCK’s trading position or cash flow, meant that MCK recorded an after tax loss for the period of $10.17 million.

MCK was able to show improving occupancy and profit in the Hotels business, despite a slowdown in demand for corporate travel and meetings. The first half of the financial year was the first time in five years where the hotels have been able to operate without the impact of pandemic restrictions, weather-related issues or large staffing shortages.

Outside of the hotel operations, MCK’s majority owned property development subsidiary, CDL Investments New Zealand Limited (CDI), improved its contribution to group profit, recording a 32% increase on its 2023 profit before tax. CDI believes that the property markets have passed peak trough and are showing signs of recovery and are still targeting an improvement on their 2023 results by year end.

MCK Chairman Colin Sim, said the strong Hotels result was reflective of the hard work of the team and the successful execution of the Revive and Thrive strategy.

“Our team has worked hard to attract both international and domestic visitors, improve our hotel offer, and drive room profitability in a challenging trading environment. Despite economic headwinds and depressed demand in some regions as a result of reduced business and government demand, the good news is that tourism, particularly from overseas, continues to improve. We expect another strong result from our Hotels business in the 2024/25 high season, with CDI also expected to deliver a year on year improvement, as the number of sections sales increases over time.”

Business highlights for the period include positive progress on the Hotels refurbishment programme, the inclusion of Sofitel Brisbane Central hotel in the Hotels portfolio, and the continued sell down of the Zenith apartments in Australia.

MCK’s Managing Director, Stuart Harrison, said the performance of the Sofitel Brisbane Central hotel over the last six months had provided many learnings. “The hotel’s trading metrics are positive. In the first quarter, the hotel saw growth in average daily rate and occupancy ahead of budget. A recent highlight for the hotel was hosting multiple teams over the NRL’s Magic Round in May and the State of Origin final game in July which emphasised how popular the hotel is for sporting teams and spectators coming to Brisbane.”

Group revenue was $85.32m (1H23: $60.05m), with profit before tax and non-controlling interests of $21.53m (1H23: $11.47m). Group loss after tax and non-controlling interests of $(11.75m) (1H23: $6.18m) was impacted by a one-off noncash $25.76m deferred tax liability adjustment as a result of a change in tax legislation. Excluding this adjustment and other one-off items, profit after tax was $12.57m.

Earnings per share for the period was -7.42 cents per share (1H23: 3.9 cps). Net Tangible Assets per share as at 30 June 2024 was $3.36 per share (Dec 2023: $3.46 per share).