Given the challenging environment of 2018, how was CENTEL’s performance?
Our group has two businesses, the hotel and the food business. Within the hotel business, we own 17 hotels and manage 22 hotels for a total of 39 hotels. For the Food business, we have 11 brands, 5 of which are Japanese with 956 outlets as of the end of 2018 and we plan to be above 1,000 outlets in 2019. During challenging events such as the statement of emergency in the Maldives during the first quarter of 2018, the hotels in the Maldives suffered however because within the hotel portfolio we have assets in Thailand which performed very well to offset this until July 2018. When there was the accident in Phuket and Chinese tourists visits to Thailand declined from July to November 2018, the Thai hotel portfolio did weaken and this weakness in the tourism market continued until the Thai Government announced the incentive scheme to waive the visa on arrival. The recovery came after three months due to the nature of Asian tourists. Thus, the second half of 2018 was indeed challenging plus globally there was the issues between the US and China impacted global growth however our marketing team was very proactive during this period.
We refocused our attention on the Indian, Australia, ASEAN, Japan, Taiwan, and Hong Kong markets to attract customers to our hotels and this is why we did not decline as our peers had and the hotel group achieved a new record for profits and revenues. Last year the hotel group occupancy rate, excluding two new hotels, maintained at 83% the same as in 2017 and the overall REVPAR was change -0.1% year on year. A success point was the MICE market which allowed Centara Grand Centralworld to achieve a record high since its opening in 2007.
For the Food business, like the hotel business, there was uncertainty in 2018 as a result of the confusion regarding the election date and the discontinuation of the tax incentive at the end of the year which had been in place in previous years. This resulted in Same Store Sales Growth (SSSG) at only +0.1% but an improvement from 2017 where it was -0.9%. Within the Food business we had interesting developments such as with KFC where a new marketing team was working on menus during the first half of 2018 creating new and innovative menus to attract customers and from July onwards the SSSG been continuously positive. Also, with Mister Donut there was a change regarding trans-fats and even though we announced from August 2018 onwards there were no items with trans-fats, the news and the competition within the industry led to a weaker performance. But when looking at the food business as a whole the total systems sales growth was better than the hotel with +9.2% revenue growth, while profit was +5.7% growth.
CENTEL has expanded impressively over the past decade, how does management effectively and/or efficiently manage its hotels and F&B’s?
The development of CENTEL as a business did not happen in one day, this was a process over the past two decades. With the first hotel at Ladprao, we had international hotel chain's managing our properties we learned and understood the requirements, processes to manage a hotel group and when we listed on the Stock Exchange we were able to utilize the capital to continue expanding further. We have to complement our Chairman K. Suthikiati as he was able to draw the best talents and combine the cultures of both the East and the West combining the service-minded culture with the systems-based culture. Furthermore, we received investment support from the IFC who were looking to develop the second tier and provide income to the domestic populations, and they assisted in financing two projects in Thailand as well as became a 10% shareholder in CENTEL. Thus, with these two initial steps of the management and the financing, we continued to expand until today where we have 17 hotels with THB 20 billion in assets, achieving a record profit of over THB 2 billion in 2018.
To efficiently manage this, we have to be aware that there are constant disruptions for both businesses and that management has to remain flexible and trust in the ability of all our team members executing. For example, during the SARS crisis, the political protest periods, occupancies in our hotels dropped to 30% then 10% some days it only had 10 rooms and in order to be diversified, we expanded into management contracts where we now have 22 hotels and by 2022 we target other 24 hotels in the pipeline. Another example of disruption is technology, we have opened our own digital marketing department focused purely on the online business which has now grown from 0% to 9% of revenue for the hotel group and we set our KPI for double-digit growth from our own websites. Finally, we launched a loyalty program, C1, which combines with Central Card's T1 which has more than 10 million members who may utilize their points between the hotels and shopping malls.
The CAPEX guidance for 2019 to 2021 are 4x the CAPEX of 2018, what are the plans and why the decision to expand heavily in the coming 3 years?
In the past we launched the Centara Grand Centralworld, Centara Mirage Pattaya and Centara Phuket Beach Resort, these three properties cost THB 10 billion, and we did not increase capital, therefore, there was no dilution to shareholders, and once we have seen the success of these projects combined with a balance sheet that is effectively debt free presented us with the opportunity to expand. Our philosophy is quite conservative and less aggressive than our peers but when we execute a project, we have a high probability of success.
Now we are planning to invest THB 26 billion over three years which includes renovation and enhancements for the hotels, major renovations of three hotels specifically Centara Grand Central World, Centara Grand Samui, and Centara Grand Hua Hin, and investments and expansion of new hotels, food brands, and food outlet expansions. When we look at our existing hotel portfolio, the net contribution from Bangkok is 30%, outside of Bangkok 50% and 20% overseas, specifically the Maldives. We will still focus on Thailand because of resilient tourism but more outside of Bangkok and overseas. We recently joined with Nakheel Group with a 40% stake for us for a 4-star Hotel in Dubai and we'll also look to expand further in the Maldives, Middle East, ASEAN especially Vietnam and Japan. In addition to this, we will look at expanding our management contracts at a faster pace compared to the hotel investments due to its asset-light nature. We foresee that in the next four years 68 hotels in our portfolio and a doubling of revenue from THB 10 bn to THB 20 bn.
For the Food business, the aim is also to double over the next four years from THB 12 billion to THB 24 billion. This year we will be launching a new brand, Aroi Dee, which is a scalable Thai cuisine restaurant that was developed by the team that manages Terrace. We've already launched three outlets at Silom 32, in the PTT Sai Mai station, and at Thai Watsadu Bangna and they are performing very well. An interesting development that we have noted is that at the Silom branch, 60% of business is delivery and for Sai Mai 40% is delivery. This is a developing trend within Thailand with changes in lifestyle and urbanization and allows our food brands distribution to no longer being limited to just the outlet.
What differentiates CENTEL versus its domestic and international competitors?
When we began managing the first hotel in the Maldives the local investor chose us because we treated them as a partner assisting with the entire process of development, financing, projections and so forth. Because we ourselves are a hotel owner and therefore understand the needs and requirements of partners, having gone through the cycles in the past. Another differentiating factor is that we are from Thailand the culture is very important with the service mindset that comes naturally and in my opinion, only Thailand and Japan currently have this high level of service quality.
What are the biggest risks facing your business and what may investors misunderstand about your business?
When we first became a listed company, investor relations was a weak point for us but as the company has grown we have ensured that our strategy, our performance, and our long term goals are well understood by our current shareholders and potential future shareholders. However, the main risks for us are uncontrollable factors whether they be natural disasters, political risks and so forth.
Where do you see in CENTEL in five years from now?
We have spent time building the foundation of CENTEL over the past two decades to ensure that we will continue to grow in a sustainable manner, delivering high-quality hospitality of Thai origin to customers globally. As a business, we focus on the long term and target to double both our food and hotel businesses within the next four years.
The Executive Q&A Series is presented by ShareInvestor, Asia's leading financial internet media and technology company and the largest investor relations network in the region. The interview was conducted by Pon Van Compernolle. For more information, email email@example.com Website: www.ShareInvestorThailand.com