Responses to MSWG Questions PRESENTATION TO SHAREHOLDERS 19 September 2017
MSWG questions 2
Strategic and Financial Matters 1) It was stated in the Management Discussion and Analysis that upon completion of the development properties Andaman 18 East and Andorra of STP as well as Princes House in the UK the unsold units cost was transferred from property development costs to inventories. We also noted in Note 23 on page 211 of the Annual Report that Completed properties increased from RM210.6 million to RM430.4 million. i. Could the Board provide an update on the sales of the completed properties to date? For FY18, 152 units of Andaman 18 East was transferred to inventory of which 5 units have been sold leaving 147 units outstanding as at 30th June 2017 Similarly 6 units of Andorra 20 was transferred to inventory where we have sold 3 units with 3 remaining units. These sales have helped to reduce the two projects inventory by RM12.6 million as at 30 June 2017. As for Princes House, 8 units were transferred to inventory. While at end of June 2017 none were sold, to date we have sold another 5 units leaving 3 units in inventory. 3
ii. What are the proposed launches for FY2018? So far in FY18, we have launched Ariza Seafront Terrace Phase 2 and are currently preparing for future launches in the next 18 to 24 months. We are pleased to report that as at end-june 2017, we have recognized RM30.1 million in inventory sales with a further RM26.4 million of SPA signed. We are looking at our launches in the next 18 to 24 months. In the pipeline, we have an estimated RM1.5 billion GDV of sales which consist of our project at Jalan Conlay (RM900 million), Avira Phase 2 (RM100 million) and STP2A Development (RM500 million). In the meantime, in FY2018 and financial year 2019 (FY2019) we will be recognizing the proceeds from the sale of Phase 2A of Seri Tanjung Pinang Phase 2 (STP2A) land to Kumpulan Wang Persaraan (Diperbadankan)(KWAP) progressively as we obtain titles and deliver the land to KWAP. 4
2) The occupancy rates of the Group s hotels have improved in FY2017. We also noted that a series of progressive maintenance works were carried out at the Group s hospitality establishments throughout the year. i. What would be the outlook on the performance of the Hospitality Segment for FY2018? Overall, the tourism market in Penang has improved compared to previous years. While intense competition from new players in the Kuala Lumpur market has placed some pressure on E&O Residences, the situation is manageable. We are expecting better financial results for FY2018 compared to FY2017. 5
ii. How much was incurred for these maintenance works and would there be any maintenance work to be carried out for FY2018? Maintenance expense is always a major expense in hotel operations. This is to ensure that brand standards are continually upheld and that product quality and safety are up to mark, on par with guests expectation of a 5-star hotel. The maintenance costs included routine upkeep of the hotel building, machinery, air-conditional system, furniture & fitting, equipment, replacement of damaged operating equipment and minor refurbishing to the hotel s surrounding, rooms and restaurants. We spent a total of RM3.76 million for these purposes for all three hotels in FY2017. We are expecting to spend less this year with the divestment of Lone Pine Hotel in FY2018. The E&O Hotel and E&O Residences are expected to spend the same amount for maintenance this financial year as in FY2017. 6
iii. How significant would the disposal of Lone Pine Hotel be expected to impact the revenue and earnings of the Hospitality segment? Taking Lone Pine Hotel s full year results for financial year 2016 (FY2016) as the base of measurement, we expect a full year reduction of 10-13% on revenue for the Hospitality segment. However, we expect the overall earnings performance of the Hospitality segment to improve now that the pressure on the bottom line from Lone Pine have been removed. 7
3) As stated in the Management Discussion and Analysis, the properties in the Group s property investment portfolio collectively returned revenue of RM14.3million (FY2016 : RM13.2 million) and gross profit of RM5 million (FY2016: RM6.2 million). What was the average occupancy rate for the Group s investment properties: With a total lettable area of around 459,000 square feet, the average occupancy rate for the Group s investment properties is 78%. 8
4) Under Note 40 on page 253 of the Annual Report, the Investments and Others segment recorded a loss of RM58.4 million in FY2017 (FY2016: Loss of RM3.7 million) What was the reason for the higher losses recorded by the segment? The higher recorded losses in FY2017 is largely because FY2016 lower losses were offset by 2 transactions: 1) The group had a one-off gain from associate for the sale of land for RM20.3 million. 2) There was a dividend issued by a subsidiary for RM30.4 million. Excluding these two transactions, FY2016 losses would have been RM54.4 million compared to RM58.4 million in FY2017. 9
End 10