During 1999 hospitality business has developed favourably in most of the markets where Radisson SAS operates hotels and resorts. With the exception of Norway, the home markets - the Nordic countries and Germany - have seen an increase in business volume as well as room rates. This is true for BeNeLux and Southern Europe as well.
      The Norwegian market was strong in the beginning of the year, but turned soft in the second part. For the UK, there was a slow-down in the beginning of the year, but the market picked up during the autumn.
      The Radisson SAS operating revenue in 1999 was MNOK 2,795 (2,644). Of this 88 (90) % is attributable to owned and leased hotels and 12 (10) % to management and licence fees and other income. System-wide revenue, including owned, leased, managed and franchised hotels amounted to MNOK 8,000 (6,900).
      Rooms account for 57 (56) % of total revenues (excluding franchise hotels), an increase of 5 percentage points in a five-year period. Food and beverage account for 36 (36) % a decrease of 4 percentage points since 1994. This shift has led to better profit margins as rooms revenue generates higher profits than the food and beverage operation.
      The 5.7 (24.2) % increase in operating revenue has been negatively affected by the sale of two fully-owned hotels in 1999 - Radisson SAS Hotel in Amsterdam and Radisson SAS Portman Hotel in London. Both hotels continue to be operated by Radisson SAS under long-term management agreements.
      Revenue for comparable units increased by 5%. RevPAR reached NOK 551. Occupancy remained high and stable, with the company record being the Radisson SAS Hotel in Amsterdam at 90%.
      GOP has maintained the same level as in 1998: 33%. This is not quite satisfactory and to a certain extent related to the relatively low growth in revenue.

FOCUS ON HOTEL MANAGEMENT

Profit before tax for 1999 was MNOK 513, which is the best year ever and the 5th consecutive year of growth in earnings. Even excluding the capital gain from sale of real estate (MNOK 271) we still had a growth of 10% from MNOK 221 in 1998 to MNOK 242 in 1999.
      Such growth is especially good for a year that includes the start-up of the owned Manchester airport hotel with heavy initial capital costs, and the closure of Fornebu airport in Oslo, inevitably leading to reduced earnings at our hotel next to it. From an operational point of view the three new airport hotels in Oslo, Manchester and Amsterdam have performed well since the opening.
      The ROCE in 1999 was 13.1 (14.5) %, which exceeds the owners requirement of 12%.
      Sale of properties obviously has a negative effect on EBITDA, which is a main reason EBITDA decreased to MNOK 433 (440) and the EBITDA margin to 15 (17) %. On the other hand, the sale of properties results in reduced capital costs (depreciation and interest). The sale of properties has significant impact on key figures for the year. But distortions in 1999 will convert to substantially better performance in 2000 when we have full year effects.

REDUCING BALANCE AND OFF-BALANCE SHEET COMMITMENTS

Total investments for 1999 were MNOK 140 (518), most of which regards continuous renovation and refurbishments. Also, heavy IT investments were made in preparation for year 2000. Every investment made is judged on its ability to create value for owners and customers.
      Of the large investment in 1998, MNOK 239 was in connection with the new airport hotel in Manchester.
      In contrast to more volatile hotel ownership, hotel management operations tend to generate relatively stable earnings and cash flow. The strategy of Radisson SAS is to divest in real estate to be able to expand more rapidly through management and lease agreements with limited financial exposure. However, to be able to take advantage of major business opportunities, Radisson SAS may engage in tactical property investment.
      As of December 31, 1999 Radisson SAS owns 4 (6) properties: Dusseldorf, Oslo (2), and Manchester. The target is to divest the portfolio of fully-owned properties completely by the end of 2001. The number of leased properties was 25 (21). New structures for lease and management agreements will further reduce off-balance sheet commitments.
      This will radically change our revenue structure and our capital base. Since 1994 management and licensing fees have increased their share of total revenues from 4% to 9%. As the sales of real estate continue the proportion of management and licensing fees will increase further.









THE ART OF DOING BETTER

With our continuous shift towards hotel management, operational performance will increasingly be in focus. To a large extent our financial performance will depend on the effectiveness and efficiency of the operation - that we do the right things and that we do them right.
      We all have to constantly aim at doing things better, in every property, in every function, every day. This becomes particularly obvious when we take over management of a hotel having been operated by someone else before. There are always costs related to a transfer, for us as well as for the owner. Aligning new hotels to Radisson SAS standard is not a small commitment when growing at the pace of 15-30 hotels annually. We simply have to do better than the hotel was doing before. If not, there was no reason for the owner to give the hotel to us.
      From a CFO standpoint it is very important that we have all the necessary tools to ensure that we create maximum value. Merely focusing on efficiency is not enough - you must understand how things relate in the value creation process. Therefore our current system of measuring employee satisfaction, guest satisfaction and owner satisfaction is reassuring for me. Also, our benchmarking techniques make it possible to constantly work on doing better than the global and local competition.
      Certainly there are new ways of running business in our industry, which provide exciting opportunities to create even more value.
      Outsourcing and centralisation are two of the major trends for increasing efficiency and focusing on overall management.
      Outsourcing non-core functions has been under development for many years. It started by purchasing of prepared produce and food rather than having a butcher and pastry cook in house etc. It continued with housekeeping and over the last few years it has developed into outsourcing entire outlets, especially food & beverage units but also health clubs, night clubs, etc. This will continue as there is a need for further focus and specialisation. Everything can be outsourced except the "core business", which again can be redefined over time.
      New technology makes it possible to centralise basic functions. A typical area for such development is accounting, where the new ERP systems make it possible to run accounting from a central unit without the individual hotel losing any information on the contrary, best practice performance will be available along with the own figures. Another very good example is sous-vide techniques which will allow hotel chains to centralise food production.
      To an ever greater extent managing hotels is becoming the art of co-ordinating resources in the value creation process, ensuring the right focus on each level and in each function. Managing the big picture, regardless of whether it's on the property or company level.

Knut Kleiven
Senior Vice President & CFO
24th February, 2000









OWNED, LEASED AND MANAGED HOTELS
 
(MNOK) 1999 1998 1997 1996 1995
Revenues 6,347 5,352 4,558 3,682 3,058
GOP % 33 33 32 30 28
 
 
OWNED AND LEASED HOTELS
 
(MNOK) 1999 1998 1997 1996 1995
Revenues 2,795 2,644 2,128 1,798 1,539
EBITDA 433 440 312 225 207
EBITDA growth % -1 41 39 9 14
Investments 140 518 296 65 94
Equity/assets 63 39 38 36 31
ROCE 13 15 12 8 7