Chairman's Message


Chairman's Message (Chinese)

Dear Shareholders,

On behalf of the Board of Metro Holdings Limited (“Metro” or the “Group”), it is my pleasure to present our Annual Report for the financial year ended 31 March 2017 (“FY2017”).

FINANCIAL REVIEW
We delivered a net profit of S$81.0 million in FY2017, with a substantial portion contributed by our share of associate’s results of S$42.5 million and share of joint ventures’ results of S$22.3 million, mainly in China. This was driven largely by rental contributions from Metro City and Metro Tower, Shanghai, and a write-back of tax provisions on finalisation with tax authorities by Top Spring International Holdings Limited, our Hong Kong-listed associate.

Our financial performance, whilst lower than the net profit of S$113.3 million recorded in FY2016, was nonetheless commendable, as it was achieved in the absence of the one-off gain of S$38.1 million from the disposal of the Group’s 50% interest in the joint venture owning the EC Mall, Beijing, in the previous financial year.

The Group’s share of associates’ results declined significantly, mainly due to lower contribution from our Nanchang project, as the residential portion of the development has largely been recognised in FY2016. In addition, there was a decline in gains from fair value adjustments on Shama Century Park, Shanghai’s investment properties, a partnership with Top Spring. Top Spring also recorded lower income due to the timing of completion and handover of properties although the impact was more than offset by a write-back of tax provisions on finalisation with the tax authorities.

We ended the financial year with a healthy balance sheet, with net cash of approximately S$323.5 million and shareholders’ equity of approximately S$1.35 billion. Having a solid financial position accords us the capacity to pursue value-enhancing growth opportunities as they arise, and provides us the buffer against global macroeconomic challenges that may come.

DEEPENING THE MANAGEMENT BENCH
At this moment, I would like to take the opportunity to welcome Mr Yip Hoong Mun, who joined as Group Chief Operating Officer and Chief Executive Officer of Metro China Holdings. Hoong Mun brings with him deep experience in the property industry and will be an asset to the Group in supporting our Chief Executive Officer, Mr Lawrence Chiang, in executing our property strategy in China, Indonesia, the UK and beyond.

PROPERTY DEVELOPMENT AND INVESTMENTS
On an overall basis, the average occupancy rate of our three investment properties, held by a subsidiary and joint ventures, remained high at 91.5% in FY2017. Buoyed by the recovery in leasing activities, contribution from GIE Tower, Guangzhou, Metro City and Metro Tower, Shanghai also rose 7% for the year, including fair value adjustments. Rental also benefited from asset enhancements undertaken at our Metro City, Shanghai’s leisure complex.

Our Nanchang Fashion Mark partnership with our associate, Top Spring, is progressing well. We have largely sold off all the residential units in the mixed development project. Going forward, contribution from this development will be mainly from the presales of the office and retail components of the development. While revenue could remain substantial, gross margins of the office component will be significantly below those achieved for the residential units.

Our Shanghai Shama Century Park serviced apartments continue to attract buyers’ interest, as the residential market in Shanghai posted a strong rebound last year. We have sold and completed the handover of approximately another half of the floor space in the project in FY2017, bringing total disposal to about 85%.

Our UK projects remain on-track. Following the completion, sale and handover of The Hatbox, Manchester in April 2016, we have commenced work on the mixed-development Middlewood Locks, Manchester, and have started to market the 571 residential units under Phase 1, in April 2017. Additionally, the Grade A office building, Acero Works at Sheffield, is expected to be completed in 3Q2017.

FOUNDATION FOR GROWTH
Having realised our property investments in FY2016 – including the sale of our 50% stake in the joint venture owning EC Mall, Beijing and Frontier Koishikawa Building, Tokyo – as part of our capital recycling exercise, we believe that it is time to invest for a new cycle. That is why we have injected another US$28.0 million in FY2017, over and above our initial US$57 million commitment, to co-invest with InfraRed NF China Real Estate Fund II (A), L.P. (“Fund II”). Additionally, we have also invested S$56.4 million in Mapletree Global Student Accommodation Private Trust, a private trust in Singapore.

With property development and investment being our core business and the main contributor of our earnings, our performance is inherently linked to the property cycle. Moreover, the nature of such investments require a long duration, spanning more than a few financial years, which may translate into earnings volatility over the life of each investment.

RETAIL
After streamlining our retail presence in Singapore in FY2016 with the closure of Metro Sengkang and Metro City Square, we have seen improvements in performance of our retail operations, albeit at a gradual pace. Revenue from continuing stores improved 5.4% to S$124.7 million as Metro Centrepoint benefitted from better foot traffic with the completion of the refurbishment of the mall. Segmental loss narrowed for the year, and together with stronger performance from our Indonesian associate, profit contribution from our retail division rose to S$1.3 million in FY2017 from S$0.1 million in FY2016.

While retail operations remain a significant part of our heritage, management is conscious of the need to improve shareholders’ returns and is employing various strategies to improve performance of the division. These include upgrading merchandise selections in close collaboration with international and local business partners to meet changing consumer taste. We are also embarking on initiatives to enhance customer service, as well as developing new multi-media platform to engage customers through social media.

OUTLOOK
Over the past year, China’s economic growth has reaccelerated, with GDP growth reaching 6.9% in 1Q2017, the strongest in six quarters¹. The faster-than-expected economic growth was mainly driven by improving exports and consumption related to the real estate sector. This has generally translated into improving the macro-environment for our China operations.

Office rents in Shanghai Grade A offices are expected to remain stable or be marginally higher on the back of robust demand from Fast Moving Consumer Goods (FMCG) and retail companies. This should bode well for our Metro Tower, Shanghai. We also expect to continue receiving stable rental income streams from our GIE Tower investment property in Guangzhou, China. Meanwhile, the asset enhancement initiative at Metro City, Shanghai has been completed in 4QFY2017. With this, we expect to see further improvement in average leasing rate.

China remains a key focus in our property development and investment strategy. We believe our extensive experience in the market and strong relationships with key partners give us a distinct competitive advantage in uncovering new opportunities. Our additional co-investment with Fund II is evidence of our deep commitment to this market.

In the UK, we are excited at the launch of Middlewood Locks, Manchester since the beginning of the new financial year. Following the Brexit vote in June 2016, the UK has experienced political uncertainties with the most recent being the outcome of the general elections held in June 2017. Despite this, the UK economy has remained relatively resilient and the property market in Manchester continued to be robust, as sentiment in this city is less impacted than that in London. Residential prices in Manchester are rising faster than anywhere else in the country, as home buyers are attracted by the city’s vibrant economy, sporting and cultural attractions, as well as the strong civic leadership.

At the same time, our Sheffield office development project has been progressing well, with one of the two buildings, Acero Works, expected to be completed in 3Q2017.

In Singapore, given the weak residential market sentiment, sales of the Group’s residential project – The Crest at Prince Charles Crescent – is expected to be sluggish.

Prospects of our Singapore retail operations remain challenging, as supply of new retail space continues to grow while consumers’ shopping behavior shifted increasingly towards online. With this understanding, Metro has undertaken to transform ourselves, both in developing fresh concepts to entice consumers with better shopping experience, as well as to develop an omni-channel marketing strategy to meet the evolving needs of our customers and support a complete online-to-offline (O2O) user experience.

Indonesia continues to hold huge potential in terms of growing consumption power in view of the country’s burgeoning middle-class. As such, we continue to prudently identify new sites for departmental store expansion.

Overall, we are constantly evaluating our asset portfolio to optimise shareholders’ return. While China remains our core market and a prime investment destination, we are constantly on a lookout for opportunities in other geographical regions to diversify our exposures and risks. Ultimately, our goal is to steadily grow our portfolio of quality assets and navigate the property cycles in each market.

PROPOSED DIVIDEND
To reward our supportive shareholders, the Board has recommended on a per share basis, dividends totaling 5.0 Singapore cents, comprising of ordinary final dividend of 2.0 Singapore cents and a special dividend of 3.0 Singapore cents. Together, these represent a dividend yield of 4.2%² and payout ratio of 51.3% of the net profit attributable to shareholders for FY2017, as compared to 51.2% in FY2016.

APPRECIATION
Our achievements and strong performance over all these years would not be possible if not for the dedication and hard work of our staff and management team across the Metro group, including associates and joint venture companies. As such, on behalf of the Board, I would like to express my heartfelt gratitude to our team. I would also like to thank our loyal shareholders who have committed their trust to us, as well as to our business partners, associates, customers and tenants for their unwavering support.

I would also like to thank my fellow Board members for their wise counsel to help guide the Group in these challenging times.

With the Group’s firm foundation and clear vision, together with the steadfast support of our various stakeholders, we believe that we are well-positioned to continue to develop Metro into a leading property development and investment group in the region and beyond.

Lt-Gen (Retd) Winston Choo
Chairman

21 June 2017

1 CBRE, Marketview – China, Q1 2017
2 Share price of S$1.18 as at 31 March 2017