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 2018 (“FY2018”).

FINANCIAL REVIEW
The Group recorded a 93.8% growth in net profit after tax (“PAT”) to S$157.0 million for FY2018, from S$81.0 million for the same corresponding period a year ago (“FY2017”).

Net profit was lifted substantially by a sharp rise of our share of associates’ results to S$124.9 million arising from the Group’s S$159.2 million share of a divestment gain (net of tax) from our Hong Kong associate, Top Spring International Holdings Limited (“Top Spring”), through a very substantial disposal of eight property projects for a total consideration of approximately HK$15.6 billion (approximately S$2.6 billion).

The Group’s net profit before tax was also boosted by strong segment results (excluding associates and joint ventures), which saw an increase to S$35.0 million in FY2018 from S$18.2 million in FY2017, mainly driven by a divestment gain of S$15.8 million from the disposal of the Group’s 30% equity interest in our China associate in Nanchang.

This more than offsets a lower share of results of joint ventures, which recorded a loss of S$0.3 million in FY2018 from a gain of S$22.3 million in FY2017 due mainly to our S$27.7 million share of a one-off expense of the Additional Buyer’s Stamp Duty (ABSD) for The Crest at Prince Charles Crescent in Singapore, partially mitigated by the reversal of a S$9.5 million write down of amount due from this joint venture.

As of 31 March 2018, the Group’s net cash position (after deducting bank borrowings) of S$181.0 million, has decreased by S$142.5 million from S$323.5 million as of 31 March 2017, a year ago. This was mainly due to the net cash used for investing activities. Although the Group registered a PAT of S$157.0 million driven by the Group’s S$159.2 million share of Top Spring’s divestment gain, no corresponding higher dividend was received by Metro for our share of such profits from Top Spring.

The Group maintained a healthy balance sheet, with net assets of S$1.5 billion and net cash of S$181.0 million as of 31 March 2018. This provides headroom for us to pursue value-enhancing growth opportunities, tapping on our established property expertise and strong partnerships with experienced partners in China, Indonesia and the United Kingdom (“UK”).

PROPERTY INVESTMENT AND DEVELOPMENT
Driving Sustainable Growth and Value
In line with the Group’s overall property strategy to broaden our revenue streams and facilitate sustained profitability through selective positioning, new investments in property development and strategic alliances were made with experienced and local partners during the year and subsequent to year-end. In FY2018, we have grown our presence in our core markets – China, Indonesia and the UK – with three separate property investments in Bay Valley, Shanghai; Bekasi, Jakarta; and 5 Chancery Lane in Central London. Subsequent to the financial year-end, we further expanded our presence in China and Indonesia with another two investments – within the prime Huai Hai Zhong Road, Huang Pu district, Shanghai; and Bintaro, Jakarta.

Shanghai, China
China continues to be a core market. Together with our joint venture partners, we made two key acquisitions to grow our presence in Shanghai – a high growth city and the financial and commercial hub of China – where we have established a strong foothold.

In September 2017, we entered into a 30%-owned joint venture with our partner Top Spring to acquire three office buildings in Bay Valley, situated in New Jiangwan City, Yangpu District, Shanghai, at the acquisition price of approximately RMB 2,476.0 million (S$505.1 million). Bay Valley is located close to Fudan University, one of China’s top universities. Fudan University and the universities in the area constitute the core of the Shanghai Central Intelligence District. The property is also highly accessible by subway lines and elevated highways, within a 30-minute drive from the city centre.

We have commenced leasing activities and see good rental opportunities for these commercial buildings given that it is part of the China government’s plan to develop the Yangpu district into a global innovation and technology hub.

Subsequent to year-end, in May 2018, we invested 35% equity in a joint venture (“JV”) to acquire a 90% stake of a mixed-use commercial building, Shanghai Plaza, for a total investment value of RMB 2,907 million (S$613 million). It is the intention of the JV to acquire the remaining 10% by 2020.

Shanghai Plaza is strategically located at the prime Huai Hai Zhong Road, Huang Pu district, the most central district in Shanghai. It is also close to the popular shopping area near Xintiandi District and People’s Square, with connectivity to major train lines and expressways.

To capitalise on the strong demand for Grade A offices as well as quality retail properties in Shanghai, Shanghai Plaza will undergo re-development and upgrading for both office and retail usage, presenting an opportunity for lease restructuring, which is expected to generate stable returns upon completion in the coming years. We will leverage our retail expertise and network to enhance the value offerings of this prime property. Such re-development, conversion and upgrading projects in the first-tier cities of China is a property investment arena that has recently grown in popularity.

Indonesia
In Indonesia, we are delighted to have entered into collaboration with the established PT. Trans Corpora (“Trans Corp”) and the Lee Kim Tah Group for the Bekasi project, Jakarta, in November 2017. The parties will develop, market and sell the residential component, Trans Park Residences, which comprises five 32-storey residential towers with 5,622 units. Each party will contribute its expertise and complement one another, particularly in the Indonesian real estate sector.

Trans Park @ Juanda Bekasi, a quality landmark mixed- development, consists of Trans Park Residences, a hotel, a school, Small Office Home Office (“SoHo”) apartments, shophouses, an office building, a Transmart mall and a theme park with Snow Town and Kidcity. It is located with close accessibility to the bus and railway station and the upcoming light train station. Sales for two of the five residential towers have been launched and construction of the development is on track and targeted to be completed by end-2020.

In April 2018, we entered into a second collaboration with our two existing partners for the Bintaro project in Jakarta, to develop, market and sell two residential towers with approximately 1,400 apartment units and 170 SoHo units. The Bintaro project is another landmark mixed-development where the residential units are positioned for the middle to middle-upper level market. The development is within a mature township with good connectivity to central Jakarta through the railway line and main toll road. The ground-breaking ceremony of Trans Park Bintaro was held in March 2018, with pre-sales commencing on the same day, and construction is targeted to be completed by mid-2021.

We consider Indonesia to be a growth market with vast potential, underpinned by its steady economic growth, a growing affluent middle class, rapid urbanisation with enhanced infrastructure and increasing domestic consumption. With the two projects’ strategic location in the fast-growing urban Jakarta city, we expect these projects to be well-received.

United Kingdom
In the UK, we broadened our footprint with the acquisition of a freehold office property located in Midtown Central London at 5 Chancery Lane with the Lee Kim Tah Group in January 2018. Fully leased to 2023, this presents an opportunity to enhance recurring income and potential returns from a quality asset, through multiple active management strategies.

With 84,836 square feet of office space over 8 levels, this freehold office building is located close to a few underground stations, namely Chancery Lane station, Temple station and the new Farringdon station hub of the upcoming Crossrail. It is also strategically located in the heart of the traditional legal area and has benefitted from a significant change in occupational demand with diverse tenant demand also coming from other sectors including technology, media and telecom.

Overall, the average occupancy rate of this newly acquired freehold and fully-leased office property in Central London, the UK and three mature investment properties in Guangzhou and Shanghai, China stood at a healthy 96.1% as at 31 March 2018. Notably, Metro City, Shanghai, continued to report higher rental income with the completion of certain phases of asset enhancement.

RETAIL
Metro’s retail topline improved by 4.0% to S$129.7 million in FY2018 due to higher sales from the Singapore operations. However, pressure on margins continues amidst higher operating costs within a highly competitive trading environment, thereby adversely impacting profitability, with this segment reporting a net loss of S$2.2 million mainly from Singapore’s retail division.

During the year, Indonesia opened two new stores – Metro Puri Mall and Metro Grand Kawanua Manado – in 1Q and 3QFY2018 respectively and the start-up costs of these new stores impacted profitability.

OUTLOOK
Property investment and development
China’s economic growth is expected to stabilise, with GDP growth reaching 6.8% in 1Q2018, driven largely by resilient consumption. Pushed by strong government policy stimulus packages or a strong pick-up in external demand, GDP may rise above 7% year-on-year (“YoY”)1. As China pushes to open its financial sector, Shanghai should continue to attract foreign and domestic financial institutions, underpinning office demand over the next three to five years2.

Apart from demand for Grade A offices to be driven by financial, technology firms and co-working space operators, Shanghai’s retail sales remain robust, growing 6.7% YoY in the first two months of 20183, with retail rents expected to increase another 3-5% in 20184, providing good demand support for quality retail properties.

This augurs well for our property investments in Shanghai, with rental stability at the joint venture level expected for Metro City and Metro Tower. We also expect to continue receiving stable rental income streams from our GIE Tower investment property in Guangzhou, China.

As for contributions from our associate, Top Spring, in view of its recent very significant disposal of eight property projects, its land bank has declined significantly. Top Spring has a number of redevelopment projects in the Greater Bay Area, which require some time to develop into saleable resources. It will also require some time to seek new suitable sites for development, using proceeds from the disposal, and bring the projects to fruition.

In Indonesia, the country has seen resilient GDP growth of 5.1% in 2017, marking the highest growth in four years due to stronger investment and net exports5. On the residential front, Indonesia is expected to see continued sales growth and moderate price growth in the middle markets where affordability is greater6.

In the UK, we are pleased that Phase 1 construction work for the 571 apartment units of the Middlewood Locks development project in Manchester has been completed and is being handed over in stages over summer 2018. This mixed development will eventually provide 2,215 new homes and about 750,000 square feet of commercial space including offices, hotel, shops, restaurants, a convenience store and gym. It is poised to benefit from Manchester’s standing as UK’s most attractive city centre residential investment market and UK’s second most important economic hub, with residential prices expected to grow 6.5% in 20187.

At the same time, our Sheffield office development project has been progressing well, with one of the two Grade A buildings, Acero Works, completed in 3Q2017 and sold in 2Q2018. Development works are now focused on Vidrio House.

Concurrently, in Singapore, we’ve seen a recovery in the property market, with prices expected to increase in 20188. Sales of the Group’s residential joint venture project, The Crest at Prince Charles Crescent, is showing gradual improvement in line with recent trends in the Singapore property market.

Retail
Prospects of our Singapore retail operations remain challenging and Metro Retail has undertaken to transform itself with a strong focus on multi-media strategy. It is also developing fresh concepts and improving the assortment of merchandise that appeal to customers. This, coupled with better in-store shopping experience, is driven towards meeting the evolving needs of customers and supporting a complete online-to-offline (O2O) user experience. Metro Retail will also consolidate operational efforts to achieve higher efficiency and productivity.

Indonesia continues to hold potential in terms of growing consumption power in view of the country’s burgeoning middle-class. As such, the Indonesia operations continue to prudently identify new sites for departmental store expansion and refresh existing stores, after opening two stores during the year.

In Conclusion
Leveraging on our healthy balance sheet, we are constantly evaluating our asset portfolio to optimise shareholders’ return, such as asset enhancement of our quality properties through retrofitting initiatives for upside potential. Metro will also continue to remain proactive in prudently seeking out a balanced portfolio of potential investment and development assets with experienced existing and new partners in China, UK and Indonesia. At the same time, we will explore regional countries for diversification. We will also continue to actively reinvest proceeds from our divestments as part of our capital recycling strategy to enhance shareholder value.

PROPOSED DIVIDEND
To reward our supportive shareholders, the Board has recommended on a per share basis, dividends totaling 5.0 Singapore cents, comprising ordinary final dividend of 2.0 Singapore cents and a special dividend of 3.0 Singapore cents. Together, these represent a dividend yield of 4.4%9 and payout ratio of 26.5% of the net profit attributable to shareholders for FY2018.

APPRECIATION
Our achievements and performance over all these years are reflective of the strong commitment 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 sincere appreciation 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 steadfast support.

At this juncture, I will like to extend the Board’s congratulations to Mr Yip Hoong Mun, who has been re-designated to Deputy Group Chief Executive Officer as of 25 May 2018. Hoong Mun’s deep experience in the property industry is invaluable to the Group as we continue to grow in our core markets. Alongside our dedicated management team, we are charting new heights while remaining firmly focused on the strong execution of our property strategy in China, Indonesia, the UK and beyond.

I would also like to take this opportunity to welcome Ms Deborah Lee Siew Yin, who joined us as a Non-Executive and Independent Director on 12 June 2018. With many years of experience and having held senior management roles in corporate finance and development, her expertise will be an asset to Metro Group.

I would also like to thank my fellow Board members for their wise counsel and guidance provided to the Group amidst volatile and challenging times.

With our strong foundation and clear vision, together with the steadfast support of our various stakeholders, we are well-positioned to drive sustainable growth and value for the Group.

Lt-Gen (Retd) Winston Choo
Chairman

18 June 2018

1 UBS, Chief Investment Office Monthly Base, May 2018
2 Colliers Quarterly Q4 2017, February 9, 2018
3 Savills, Shanghai Retail Market Report, Q1 2018
4 Knight Frank, Shanghai Retail Market Report, Q4 2017
5 The World Bank, Mar 27, 2018 – March 2018 Indonesia Economic Quarterly: Towards inclusive growth
6 JLL, Jakarta Property Market Review, Q1 2018
7 JLL, Residential Forecasts-Northern England, Q1 2018
8 Savills, World Research-Singapore, 1Q2018
9 Share price of S$1.14 as at 29 March 2018