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Mandarin Oriental International: Half-Yearly Results 2025 · Investor Exchange

• 0:02
  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
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  Welcome to The Deep Dive. We're the show that goes beyond the press release,
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  getting into the real substance behind the numbers.
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  Today, we're checking into the world of high-end hospitality,
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  focusing on a truly iconic name, Mandarin Oriental.
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  We all know the luxury, the service, but what's the financial story right now?
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  Our goal today is to really unpack Mandarin Oriental International Limited's
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  half-yearly results, the ones for the six months ending June 30th, 2025.
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  We want to dig into their financial performance, get past the surface figures, and understand the why.
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  The successes, sure, but also the challenges, and maybe get a sense of where they're headed.
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  Exactly. And to do that, we're relying entirely on the official source material,
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  their half-yearly announcement, and the detailed financial statements that go
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  with it. These aren't just numbers on a page.
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  They really give you a comprehensive look at the company's health,
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  its strategy. It's the closest thing to being in the room for their planning sessions, I suppose.
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  Right. And when you look at those numbers, the headlines immediately present
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  this interesting split, almost like two different stories playing out with revenue.
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  The first big piece of news, and it's definitely positive, is Mandarin Oriental's
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  management business. That's where they manage hotels for other people taking fees.
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  That side of the house saw really strong double-digit growth,
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  both revenue and profit up nicely in the first half of 25.
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  Let's put some figures on that. Their combined total revenue that's across the
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  whole group grew 11%. It hit U.S.
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  $1,088 million, which is up from U.S. $980 million last year.
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  And digging into that management business specifically, the hotel management
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  fee income jumped 14% to U.S. $41 million.
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  A big driver there was strong growth in rev pay revenue per available room.
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  That's a key metric in the hotel world. Definitely.
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  And rev payer grew 11% across the board. Asia saw U.S.
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  $257, Europe, the Middle East, and Africa hit a very strong U.S.
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  $677, and the Americas were up a solid 6% to U.S.
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  $447. So that 11% group-wide rev payer growth, what's that telling us?
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  Is it just more heads and beds, or are they getting higher prices?
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  It's usually a mix, but for a brand like Mandarin Oriental, an 11% jump like
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  that strongly suggests pricing power.
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  Yes, occupancy matters. But in luxury, rev payer growth often comes from pushing
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  that average daily rate, the ADR, means the brand's hot, guests want that experience,
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  and they're willing to pay a premium for it.
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  So it signals real strength in their core markets and brand desirability.
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  But here's where it gets more nuanced, that tale of two revenues you mentioned,
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  because despite that really positive growth in the management fees and overall
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  business flowing through their managed hotels,
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  if you look at their consolidated revenue, the revenue they report directly
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  on their own books, it actually went down slightly.
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  A marginal decrease, 1%, falling to U.S. $248 million from U.S.
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  $251 million last year. Right. And that feels counterintuitive.
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  How can the business they manage be booming, but their own consolidated revenue
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  is flat to slightly down? what's going on there.
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  It really comes down to a major strategic choice they're making.
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  The main reason for that consolidated revenue dip is asset disposals.
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  They sold off hotel and retail properties in Paris back in 2024.
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  And then more recently, in the first half of this year, 2025,
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  they completed the sale of their Miami property.
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  When you sell big assets like that, the revenue they generated simply isn't
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  on your consolidated books anymore. Ah, okay. So it's not that the remaining business is shrinking.
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  Not at all. And this is crucial. If you look at it on a comparable basis,
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  basically, taking out the impact of those sales enclosures, the consolidated
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  revenue actually grew by a healthy 7%.
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  It really highlights the strategic shift they're accelerating towards what's
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  called an asset light model. Asset light. We hear that term a lot.
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  So basically, they're moving away from owning all the buildings themselves,
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  focusing more on the brand and management side. That's the core idea, yes.
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  Owning these big luxury properties ties up enormous amounts of capital and exposes
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  you to the ups and downs of the real estate market.
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  By selling some properties, often while keeping the management contract,
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  they unlock that capital.
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  They can then redeploy it into growing the brand, signing new management deals,
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  renovating key locations, without the huge burden of ownership everywhere. It makes sense.
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  Leverage the brand's strength without having to own every single brick.
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  So how does that play out in their profitability figures?
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  Let's shift there. Their management business comparable EBITDA,
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  that's a measure of operational profit, was up 11% to U.S.
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  $12 million, driven by those strong fees we talked about, though they did note
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  some offset from investing in future capabilities. So they're putting money back into that side.
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  Right. Building capacity for more growth. And then for the hotels they do still
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  own or have a stake in, the comparable EBITDA there saw a more modest increase,
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  up 2% to U.S. $50 million.
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  They mentioned good results in Hong Kong and Geneva, though London was a bit
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  softer. So again, the underlying operations seem pretty solid.
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  They do, which makes the next number quite striking.
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  The reported loss attributable to shareholders actually widened quite a bit.
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  It went to U.S. $64 million for the half year compared to a U.S.
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  $52 million loss in the same period last year. OK, so solid operational profit
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  growth in the core businesses, but a bigger overall reported loss.
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  That definitely needs unpacking. What's causing that disconnect?
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  This is where you really have to look at the non-trading items.
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  These are things outside the day-to-day hotel operations.
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  The biggest single factor here was a large revaluation loss on investment properties.
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  It hit U.S. $103 million in the first half of 2025.
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  That's way up from U.S. $37 million in the same period last year.
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  A revaluation loss. So that's not cash flowing out the door.
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  It's an accounting adjustment. Exactly.
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  Largely relates to their One Causeway Bay project. Basically,
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  assumptions about future office and retail rental values changed,
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  leading to a write-down in the property's book value.
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  It's a significant paper loss, but it doesn't reflect the cash generated by running their hotels.
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  Got it. A big hit on paper, but not operational cash. Were there other non-trading things?
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  Yes, a couple of others worth noting. On the plus side, they booked a U.S.
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  $22 million gain from selling that Miami property.
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  That's a positive cash impact, eventually.
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  But offsetting that, they also had to recognize a U.S. $7 million liability.
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  This was related to repaying some COVID-19 government subsidies they'd received
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  for their hotel in Munich, a one-off repayment.
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  Okay, so you have this big non-cash revaluation loss, partly offset by a gain
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  on disposal plus a one-off repayment.
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  So if you strip all that noise out, what does the real underlying profit look
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  like? That's the key question.
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  And their underlying profit attributable to shareholders, which does trip out
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  those non-trading items, actually increased.
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  It was up 6% to U.S. $24 million.
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  Right. So underlying profit up 6%, even though the headline number is a bigger
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  loss, that's a vital distinction for anyone trying to gauge the actual health
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  of the business, isn't it? Absolutely critical.
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  The underlying profit gives you a much cleaner view of how the core hotel management
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  operations are actually performing, generating recurring income.
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  It shows the engine is running well, despite those external or accounting-based
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  hits to the statutory result.
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  That makes a lot more sense. And it brings us right back to their strategy,
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  that asset-laid approach. It's not just theory. We're seeing it in action. We are.
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  Completing the Miami sale is a concrete step.
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  And they also mentioned signing an agreement to sell their hotel property in Munich.
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  But crucially, as you pointed out earlier, for both Miami and Munich,
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  they're keeping long-term management agreements in place.
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  So they get the cash from the sale but keep the brand presence and the fee stream. Precisely.
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  It's about converting capital-heavy assets into a reliable fee-based income stream.
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  It reduces risk, frees up capital, and allows them to focus on what they arguably
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  do best, managing low-tree experiences under the Mandarin Oriental brand.
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  And they're not just selling, they're actively growing that management portfolio,
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  too. You mentioned they now manage 44 hotels.
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  Since the start of the year, they've rebranded the Lutetia in Paris as a Mandarin
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  Oriental, a huge move for that historic property. A real flagship addition.
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  And they've taken over management of three new hotels, Amsterdam,
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  Venice, and one on the Desaru Coast in Malaysia, quite diverse locations.
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  It shows the global appeal of the brand to hotel owners.
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  Plus, they've announced new deals coming online soon, Suzu in China,
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  and a hotel and residences in Puerto Rico. This pipeline seems pretty robust.
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  It definitely underpins that strong growth we saw in the management fees.
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  They're clearly confident in finding owners who want their flag and believe
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  in the luxury travel market's future.
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  And it's not just about adding new dots on the map, is it? They're also investing
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  back into the brand itself. Very much so.
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  They mentioned significant renovations of their founding properties,
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  the flagships in Hong Kong and Bangkok.
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  These aren't minor touch-ups. They're major investments to keep those icons
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  at the absolute forefront of luxury.
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  And things like a new mobile app, even a documentary film, Inside the Dream.
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  How do those fit into a financial discussion? They're all part of enhancing
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  that guest experience and brand desirability.
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  The app improves engagement and service delivery. The film builds the brand
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  narrative, the mystique. It's like investing in the brand's aura.
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  In luxury, that's not fluff. It's what allows you to command premium rates and drive future RFP AR.
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  It builds loyalty and attracts new high-end customers.
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  These investments are absolutely key to the long-term strategy.
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  So investing in the experience, the brand story, not just the buildings.
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  Okay, let's look quickly at the overall financial health picture.
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  The balance sheet. Net debt went up a bit in the first half. It was U.S.
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  $152 million at the end of June, up from U.S. $94 million at the end of last year.
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  What was behind that increase, especially with cash coming in from Miami?
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  The main driver there was ongoing funding for that big One Causeway Bay project in Hong Kong.
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  That's a major development requiring significant capital investment over time.
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  So even as they generate cash from operations and some disposals,
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  they're also strategically deploying capital into key long-term owned assets like that one.
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  Okay, so investing in strategic development, what about cash flow overall?
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  Operations generated a healthy U.S.
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  $39.1 million in cash. But overall, cash and cash equivalents actually decreased by about U.S.
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  $54 million during the first half. Why the decrease if operations were positive?
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  It merely reflects the change in investing activities compared to last year.
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  In 2024, they had larger asset sales, bringing in more cash from investing.
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  This year, fewer large sales meant less cash inflow from that side,
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  leading to the overall decrease despite positive operating cash flow.
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  Right. Timing of asset sales makes a difference there. But Scability seems OK.
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  They refinanced a good chunk of debt. Yes, they refinanced U.S.
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  $359 million in bank facilities back in February, securing funding for the next
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  three to five years. That suggests lenders are comfortable.
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  And as you mentioned, despite the reported loss, they kept the interim dividends
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  steady at U.S. $150 per share.
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  That feels like a statement of confidence. It absolutely is.
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  Maintaining the dividend signals that management believes the underlying business
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  is strong and generating enough cash, and that the reported loss isn't reflective of core health.
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  It tells shareholders they expect continued solid performance.
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  So looking ahead, what's the official outlook? The group chief executive,
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  Laurent Kleitman, sounds pretty positive.
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  They're aiming to open two significant new hotels and residences in the second half of this year.
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  One is Mandarin Oriental downtown Dubai, their second property there.
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  The other is Mandarin Oriental Vienna. That'll be their first flag in Austria.
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  Plus a residence opening in Madrid. So the expansion continues.
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  And their overall feeling about the market, still bullish on luxury travel despite,
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  you know, everything going on globally. They seem to be.
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  They acknowledge the geopolitical and economic volatility, but state they believe
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  they're well positioned to accelerate growth.
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  They're banking on sustained demand for luxury leisure travel.
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  Which does suggest that high-end segment might be proving more resilient to
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  wider economic pressures. That seems to be the bet.
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  The spending patterns of the very wealthy can be less correlated with general economic cycles.
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  They're targeting a market that still prioritizes unique, high-quality experiences.
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  So wrapping this up, what are the key takeaways for you, our listener?
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  This deep dive really shows the layers, doesn't it? You can't just look at one
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  headline number for a company like Mandarin Oriental. Definitely not.
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  You've got strong underlying performance in their core operations,
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  particularly the growing management business.
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  You've got this very deliberate strategic shift towards being asset light,
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  which impacts consolidated figures through disposals.
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  And then you have these significant non-trading items like that big property
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  revaluation that can create volatility in the reported profit or loss,
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  but don't necessarily reflect the day-to-day business health.
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  So connecting the dots, it looks like a company actively reshaping itself,
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  focusing on brand and management fees, becoming less dependent on owning vast
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  amounts of real estate, while still investing heavily where it counts in flagship
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  properties and the overall brand experience.
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  That sums it up well. They're navigating market shifts and accounting impacts
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  while executing a clear strategy focused on long-term, potentially more stable fee-based growth.
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  .