Upmarket accommodation firm Millennium & Copthorne Hotels Plc (M&C) is stuck between a rock and a hard place: Brexit is driving up staffing costs in its home market while the spat between North Korea and the U.S. is hurting its Asia business.
A dwindling supply of jobseekers arriving in Britain from eastern Europe is having an adverse effect on labor costs in the U.K., Interim Chief Executive Tan Kian Seng said on a call with reporters to discuss the Surrey, England-based firm’s fourth-quarter results on Thursday.
Further away, tensions between the U.S. and North Korea have prompted many airlines to stop using the Millennium Hilton it operates in Seoul, Tan said. The Chinese government has also cut its bookings there, he said.
“Our hotel is situated within the firing zone from North Korea,” Tan said. “Because of the instability, even the traditional tourism from Japan has dropped. That has a big impact.”
Tan is hoping the 2018 Winter Olympics, starting tomorrow in the South Korean city of Pyeongchang, might go some way toward easing the political tensions and boost bookings, though he cautioned that forward-looking data from Chinese visitors is not yet indicating an improvement.
For M&C, which has seven locations across the most affluent areas of West London — including Chelsea Football Club’s Stamford Bridge stadium — the Brexit impact is untimely. Labor costs were already inflated by the introduction of the U.K.’s National Living Wage in 2015, Tan said.
Declining occupancy rates mean revenue per average London room fell 4.5 percent in the fourth quarter, according to the earnings report. This was exacerbated by a spike in tourism in the second half of 2016 as sterling plunged, M&C said. An increase in terrorist attacks in 2017 may also have played a role, the company said.
M&C, which is cutting its full-year dividend by 16 percent to 6.50 pence, fell as much as 2.6 percent in London and traded down 0.7 percent at 534 pence as of 1:43 p.m. The company was the subject of a takeover bid last year from City Developments Ltd., Singapore’s second-largest property developer, valuing the firm at about 2 billion pounds ($2.8 billion). M&C shareholders rejected the deal last month after analysts said it undervalued its assets.
The following is a rundown of key full-year and fourth-quarter results:
- Fourth-quarter revenue slipped to 260 million pounds from 261 million pounds while full-year revenue rose 8.9% to 1 billion pounds
- Revenue per average room fell 1.1% to 83.9 million pounds in the fourth quarter, and increased by 7.9% in reported currency over the course of the year, or 3.2% in constant currency
- Pretax profit grew by 36% to 147 million pounds in 2017
- Foreign exchange gains relating to hotel revenue totaled 39 million pounds in 2017, arising from weaker sterling, the firm’s reporting currency
- Co. also noted added pressure due to “unabated growth” in popularity amongst customers of online travel agents; also said New York business impacted by union driven wage increases and continued growth in room supply
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