By Ashford W. Meikle, Staff ReporterTHE Jamaica Pegasus Hotel posted flat earnings for its financial year ended March 31, 2004, according to its audited financial statements.
While the hotel's revenues increased by 13 percent, moving from $475 million to $538 million, inflation has to be taken into account. The hotel has attributed the static revenues to a soft market last year which resulted in reduced bookings.
In spite of its flat earnings, though, there are encouraging signs which bode well for the hotel in the future. Importantly, the hotel continues to maintain operational efficiencies. Cost of sales, for example, appreciated along the same trend - 13 percent. Stated as direct costs in the hotel's profit and loss statement, these expenses increased from $197 million to $223 million. Not surprisingly, gross profit went up by the same margin of 13 percent, from $278 million in 2003 to $315 million in 2004. Continuing on its efficiency path, operating and administration expenses (O&AE) increased by just 15 percent. Totalling $264 million in 2003, O&AE moved to $304 million in 2004.
Yet, in spite of maintaining control over its expenses, the hotel saw a reduction in it's operating profit, principally because of a 41 per cent decline in other operating income. The hotel, which earned operating profit of $22 million in 2003, saw reduced earnings of $16 million in 2004 - a 27 percent reduction. The main reason behind its reduced earnings was the closure of the hotel's gaming lounge, the Derby Room which came under stiff competition from the opening of rival Terra Nova's Monte Carlo Gaming Room; betters and prospective betters simply moved up the road to Waterloo Avenue. Yet, in spite of a 240 per cent increase in finance income, Pegasus was only able to return a two per cent net profit increase for 2004, which was up to $20.1 million from $19.6 million. With reduced operating profit and reduced income, shareholders will barely see an increase in their dividend cheques as the earnings per share increased by a mere six percent. Compared to last year when 16 cents was paid, the directors have declared a dividend of 17 cents for the 2004 financial year. Overall, the Jamaica Pegasus hotel has done remarkably well over the past two years in light of the fact that it operated at a deficit for five years, 1997-2002.
It is positioning itself to deal with the competition and better its performance this year. The Pegasus has long held its own against the competition from neighbouring Courtleigh and Hilton hotels. The general manager, Eldon Bremner, is not worried about the potential competition from the recently opened Knutsford Court hotel. In an interview with the Financial Gleaner, Mr Bremner said he did not believe the Knutsford Court would lead to a contraction of the market. "They have their own market," he said. The Hendrickson family who recently bought the Island Life Centre from Dennis Joslin owns the Knutsford Court and Courtleigh hotels. Mr Bremner told the Financial Gleaner that Pegasus has a healthy balance sheet with fairly strong liquidity and continues to do well; the hotel is able to use its own resources to constantly upgrade the hotel. In the latter part of last year, the building's exterior was repainted. Recently it refurbished its sixteenth and twelfth floors which house the Royal Club Suites. This refurbishing now means that the four executive floors now have a new look. According to Mr Bremner, the hotel has adopted a policy that no guest should be inconvenienced while it repairs its operations hence while no major refurbishing may be visible to the public the process is an ongoing one. The general manager is spearheading a marketing team that will focus its operations on both the international and local markets. The local market is important, Mr Bremner emphasised. He pointed out that "Marketing in Jamaica is not difficult-we give our customers what they want. We want Jamaicans to feel welcome here and feel they are a part of the hotel. And we have the best staff in the industry [in Kingston]."
The company employs the Global Distribution System (GDS) in its operations. GDS is the world's largest electronic travel reservation system. In fact, the senior managers of the hotel are now undergoing a training seminar that focuses on the logistics and mechanics of GDS.
MARKETING THRUST
The hotel plans a major marketing thrust in the English speaking Caribbean, which constitutes 25 percent of its business. It also plans to target the diplomatic market and work with JAMPRO.
The Urban Development Corporation (UDC), through its subsidiary, National Hotels and Properties (NHP) owns almost 72 million shares - or approximately 60 percent - in the entity and is represented by UDC chairman, Dr Vin Lawrence. SuperClubs hotelier, John Issa who controls 25 per cent of the Pegasus's stockholdings, chairs the board. Over the years, the board has franchised out the hotel's management contract to a number of international hotel chains. In the eighties and early nineties Trusthouse Forte managed the hotel. In 1997 the management contract was awarded to the hotel group, who earned three percent of the hotel's sales and a further seven percent of its gross profit in return for managing the hotel. In 2002 Le Meridien did not renew its management contract. The then financial controller, Earl Bremner, assumed the general manager post.
Under the management of Le Meridien, the Pegasus operated in the red, posting losses for five consecutive years. But, in the past two years - under Bremner's stewardship the company has begun to regain financial health, erasing its losses, implementing cost control. The hotel also upgraded its 300 saleable rooms with high-speed Internet access as well as upgrading its information technology system in the sales, reservations and front offices divisions. Stockholders, upbeat about the company, rewarded the hotel. Over the past two years Pegasus's stock price has appreciated by 225 percent. The stock, which traded at $2.00 in June 2002, closed the business day on Wednesday at $6.50. In fact, benefiting from the Bull Run on the stock market in the first quarter of the year, the hotel's stock was one of the biggest winners trading for as high as $11.00 in April.
The first hotel in Kingston to attain a ISO 90002 rating, the 17 storey Pegasus has towered above the New Kingston financial district since 1973. Long regarded as the premier business destination in Kingston, Pegasus's real gem is the prime real estate that it sits on. The hotel borders three roads - Knutsford Boulevard, Altamont Crescent and Oxford Road. It is also the biggest hotel in Kingston with 310 rooms and an additional forty, which are rented out or converted to suites. With its turnaround and the potential for bigger growth, it is no surprise that the hotel has always attracted potential investors. Indeed, over the past two years there have been a number of offers to acquire the hotel. One of the last bids was by the Hendrickson family of National Continental Corporation. But shareholders spurned the offer by the Hendricksons. At the time Mr Issa said that the offer "was less than the valuation of the land alone." Speaking yesterday with the Financial Gleaner, Mr Issa said that there has been no recent offer for the hotel. He did concede, though, that the board has "signed confidential agreements with three interested parties." Mr Issa explained that the "usual due diligence [study]" is being done.
The Jamaica Pegasus hotel will hold its 36th annual general meeting on June 28, 2004 at its Knutsford Boulevard location.
