IHI has just published its preliminary profit statement for the year ended December 31, 2002.
The company had Lm13.8 million (2001: Lm5.5 million) in revenue principally from the operation of the Nevskij Palace Hotel in St Petersburg (which was acquired in January 2002), the Corinthia Alfa Hotel in Lisbon, and the San Gorg. Gross profit came in at Lm4.4 million, up from the previous year's Lm1.3 million as more operations contributed cash flow.
A positive operating profit was reported compared to the operating loss in 2001. After other income and expenses, profit before tax was Lm1.2 million (2001: Lm0.4 million), with after tax profit at Lm0.9 million (2001: Lm0.4 million). Earnings per share doubled from one cent to two cents.
The two years reported on cannot be readily compared. It is clear from the figures that the scale of operation in 2002 was much larger than in 2001. Marketing costs, for example, doubled to Lm1 million. Exchange differences at more than Lm3 million were more than ten times what they were in 2001. Administrative expenses more than doubled.
It means that IHI is taking on the shape of an international hotel company as generally understood. The cash inflow will give heart to investors, even though IHI has always been presented - rightly, in my opinion - as a long-term asset play: investing in rather depressed assets today and capturing the gains as the circumstance surrounding those assets develop.
Cash inflows will help calm nerves while one is waiting and while one is witnessing the increased variability of reported earnings. With more stringent accounting requirements, income statements and balance sheets are getting to be more volatile. There are more fluctuations to the figures since, more and more, the accounting profession is focusing on capturing more of the economic reality (e.g. change in the value of investments, exchange fluctuations) now rather than later. All companies are having to live with this.
IHI had a good year, overall. Management remains very focused and the Group continues to accumulate management talent. Fingers crossed, with more peace, there should be more prosperity, and the top-notch hotels the company acquired should see substantial increases in value. The profitability which germinated in 2002, if sustained, should give IHI and its shareholders the stamina to wait.
Mr Azzopardi is corporate stockbroker of Bank of Valletta plc.