Chairman's Statement
“Metro shareholders will benefit from realised profits from the divestments of 1 Financial Street and Metropolis Tower in Beijing in FY2011. These are the fruits of our investments in China properties.
With this unlocking of value for shareholders, the Board is delighted to reward our shareholders with a proposed special final dividend of one Singapore cent as well as an ordinary final dividend of two Singapore cents per share. Added to the interim dividend of two Singapore cents, total dividends for FY2011 translate to a payout ratio of 44.6%1 of the Group’s net profit attributable to shareholders.
In addition to these dividends, the Board has recommended a “one-for-five” bonus issue to further reward our shareholders, many of whom have supported Metro for many years, with some having invested since Metro’s listing in 1973.”
FY2011 was an exciting year when we rebalanced our property portfolio with a view of looking at new investments and strategic alliances with partners. We divested four properties in China and Malaysia. The Group further collaborated with Tesco plc in three other joint ventures, and acquired a commercial property in Tokyo.
At the Retail front, two new Metro department stores commenced operations in Indonesia while two Monsoon/Accessorize specialty shops were added to our portfolio in Singapore in the year under review.
Financial Review
The Group’s revenue increased to S$175.2 million, up 16.1% from S$151.0 million in the previous financial year (“FY2010”), due to higher rental income from the Property division and higher sales from the Retail division.
Turnover from our core Property division rose 16.0% from S$54.7 million in FY2010 to S$63.4 million in FY2011, mainly due to higher rental income. This was the result of higher contributions from Metro City, Shanghai, EC Mall, Beijing and the newly acquired Frontier Koishikawa Building, Tokyo, notwithstanding lower rental earnings from Metro Tower, Shanghai and the decline in value of the Renminbi against the Singapore dollar.
Sales for the Retail division amounted to S$111.9 million this financial year, up 16.1% from S$96.3 million in FY2010. Sales improvement was broad-based although the newer Metro City Square department store was a significant contributor. New Monsoon/Accessorize specialty shops also contributed positively to retail sales.
The Group’s net profit attributable to shareholders slipped 12.8% from S$93.9 million in FY2010 to S$81.9 million in FY2011 due to lower gains from the fair value adjustments of the Group’s investment properties, including those held by associates. The fair value of the Property division’s portfolio of short term investments was relatively stable during the year after the strong recovery in FY2010.
The Group continued to maintain a strong balance sheet, with a healthy cash position of S$407.8 million as at March 31, 2011. Shareholders’ equity increased further to S$1.0 billion. With this strong balance sheet, we are well-positioned to pursue further growth opportunities both in our Property and Retail segments.
Property Development and Investment
We are pleased to report healthy occupancy rates averaging 88.1% for our two mature commercial retail properties - Metro City, Shanghai and Metro City, Beijing - and two office properties – GIE Tower, Guangzhou and Metro Tower, Shanghai - in China’s first-tier cities. Collectively, these four properties have a total lettable area of almost 225,000 sqm.
The one-and-a-half-year-old EC Mall in Beijing and newly acquired Frontier Koishikawa Building in Tokyo contributed positively to the Group’s top-line, with occupancy rates of 89.1% and 73.2% respectively. Together with the strong-performing Metro City, Shanghai, these three properties more than compensated for lower rental from Metro Tower, Shanghai, and an appreciating Singapore dollar in FY2011.
Four properties – Metropolis Tower and 1 Financial Street in Beijing, and Gurney Plaza Extension and G Hotel in Penang – were divested in the year under review, due to increase in competition in office buildings in Beijing, and maturing of Gurney Plaza Extension and G Hotel.
We have also furthered our collaboration with Tesco plc through an investment of approximately US$10.5 million for a 10.7% effective interest in three projects in the PRC – Tesco Lifespace, Fuzhou, Tesco Lifespace, Xiamen, and Tesco Lifespace, Shenyang. These three development projects are located in China’s third-tier cities and they signify our commitment to expand our foothold in the PRC. Together, these three projects have a total lettable area of almost 90,000 sqm.
The Group owns 5.0% of Top Spring International Holdings Limited, and about 1.3% of Shui On Land Ltd, both listed on the Hong Kong Stock Exchange and are leading property developers in the PRC. We remain optimistic in both the companies’ long-term investment prospects.
To further enhance our Property Development and Investment division, we will prudently leverage on our strong foothold in China and seek out strategic partnerships.
Retail
The robust economic growth resulted in optimism in consumer spending in FY2011 and the Group’s Retail division benefitted positively from it.
There are currently four Metro stores in Singapore, and seven in Jakarta, Bandung, and Makassar, Indonesia. Metro Trans Studio Makassar and Metro Gandaria City are two new additions to our Indonesian portfolio in FY2011. Although increased competition and start-up costs associated with the investment of these two new stores have affected the profitability of our Indonesian associate in FY2011, we are cautiously optimistic about our Indonesian retail business. To date, the Metro brand occupies a total of 1,166,266 sq ft of downtown and suburban retail space.
Also under our retail portfolio in Singapore are UK brands Monsoon/Accessorize. Currently we have seven Monsoon/Accessorize specialty shops spread around the island, including our two new shops in Takashimaya and Changi Airport Terminal 2.
Going forward, we will be looking into new specialty shops and additional Metro stores both in Singapore and in Indonesia. As an established retail brand and a progressive retailer, we will continue to offer a variety of quality merchandise through close collaboration with international and local business partners and be more customer-centric in meeting their lifestyle needs with improved customer service. We will also be looking at adopting new marketing platforms to reach out to a wider customer base.
Corporate Social Responsibility
At Metro, we remain committed to giving back to society, especially in causes concerning underprivileged children.
In China, we initiated in 2005 the “Metro Scholarship” programme which is an annual commitment. We also started the Feng Yang Shanghai Metro Hope School (“Hope School”) project in Anhui province with the help of our partners in Shanghai Xuhui District and our tenants at Metro City, Shanghai in December 2007. This involved the construction of a new school building to accommodate 400 primary school students and we continue to support the school through various ongoing programmes for teachers and students.
The retail division launched the “Metro for Children” charity programme in 2001 together with the Singapore International Foundation and various schools. Most recently, we adopted the “Merlion Friendship Hall” project where a multi-purpose school hall was built for a school in Bandung, Indonesia.
Outlook
China’s economic outlook remains broadly favourable with GDP growth projected at 9.3% in 2011 and 8.7% in 20122. According to recent property reports, the office and retail property market in Beijing, Guangzhou and Shanghai recorded positive growth in the first quarter of 2011. The industry is also expected to remain upbeat for the rest of the year.
Riding on the positive sentiment in the property sector in China’s first-tier cities, we expect rental income from our portfolio of properties to continue to generate steady earnings. As part of our strategy to continuously maximise value for the Company, a disposal of Metro City, Beijing, has been announced on June 17, 2011. This divestment exercise, when successfully completed, is expected to result in a net gain on disposal of a jointly controlled entity estimated at approximately S$87.4 million before tax.
We will continue to leverage on our strong reputation, extensive network of contacts, track record of over 20 years in China and experienced management team to prudently expand our presence in fast growing regions especially in the PRC. At the same time we will strive for optimal tenant mix and efficient management of our existing property portfolio to improve profitability of our business.
Consumer spending is projected to remain upbeat in 2011 in both Singapore and Indonesia. As such, we believe Metro is poised for further growth opportunities in the coming financial year.
With increased competition in the retail space in the region, we will continue to enhance our merchandise offering and identify new and viable sites to expand our retail network.
Appreciation
On behalf of the Board of Directors, I would like to thank our business partners, associates and shareholders for their unwavering support in the past year.
In closing, I wish to extend my deepest appreciation to my fellow Board members for their invaluable insights and guidance. I would also like to acknowledge the hard work, commitment and dedication of the management and staff of Metro.
With the support of our shareholders, management and staff as well as business associates, I believe Metro is well-positioned to take on greater challenges ahead and scale new heights in this ever changing business environment.
Lt-Gen (Retd) Winston Choo
Chairman
June 17, 2011
1 As at June 17, 2011
2 World Bank, China Quarterly Update, April 2011