Boasting one of Hong Kong’s best-loved hotels, the Peninsula Hong Kong, The HongKong and Shanghai Hotels group has expanded its hotel chain across Asia, the US and is scheduled to open its first European hotel in Paris in 2012. The group also has a variety of other interests, including in commercial property, merchandising and management of private clubs.
Here one-time banker and currently finance director and chief finance officer for the hotel group, Neil Galloway, discusses his role at the company, and what life is like on the other side of the pitch presentation.
Please give a brief description of your company
The Hongkong and Shanghai Hotels group has three divisions. Our hotels division which is what we are best known for under the ‘Peninsula’ brand. We have six hotels in Asia, three in the US, and one in Paris due to be completed in late 2012. We additionally have a commercial properties division principally focused in Hong Kong. We also have a clubs and services division which includes management of a number of private clubs in Hong Kong, a laundry service, a golf course in Thailand and Peninsula Merchandising.
How would you describe your treasury and cash management operations?
As CFO for The Hongkong and Shanghai Hotels, I have responsibility for the finance and treasury parts across the group, in addition to business development and the legal department including the company secretary role. I also supervise our projects team, which involves new hotel developments and renovations, and investor relations. I have strategic oversight for these aspects of the business and provide guidance to the CEO in these areas.
We have financial controllers and accounts teams in each property, and financial information is consolidated up to head office in Hong Kong. Obviously we can’t run finances in a hotel in Chicago from Hong Kong, so these operations are run locally, but we consolidate information here and policies and procedures also come from head office.
All of our debt funding is through bank financing rather than through capital markets. We monitor cash weekly across group operations and manage that centrally. We also manage bank relationships and funding from the group level, including intercompany funding. Some financing is against individual properties, as is the case with financing against our hotels in Tokyo and Shanghai, but the other hotels were bought and paid for long ago, so this requires more of a group funding strategy.
Is your business affected by recent developments regarding the liberalisation of the renminbi?
Our business is naturally hedged. Our hotel in Tokyo, for instance, is funded in yen, we borrow in yen and operationally it is a yen business. Clearly in China there are complexities given currency controls and regulations and, of course, we have two hotels in Shanghai and Beijing, but they are also funded locally.
We have always tried to avoid any unnecessary FX exposure because these hotels are long-term investments. My job is certainly not to take a view on currency movements; my job is to fund the business taking account of operational cash flows. Obviously we’ve got translation issues at a consolidated level from an accounting point of view, but we are not running real FX risk from an operations point of view
Could you identify your most important strategic decision since you joined the company?
We now have eight core banks at group level which service us locally and internationally, and we’ve tried to have more strategic relationships with them since I came on board in 2008. We cemented those relationships to some extent with a group term facility last year, so that they were all at the same table and effectively formed a structured club facility. We’ve also moved to having a bank presentation after our annual results.
Of course our banks have to compete with each other to provide different services, because they all have their own strengths and weaknesses. For their part, they understand that we will go to the best and most competitive service provider, but in general we are trying to have an equitable distribution of our wallet across our bank group. They know they are competing, which is good for us because we know we are getting a competitive service, but it also means the banks know they have an equal opportunity to win business if they are competitive enough.
A relationship is never going to work well if it’s one way, so what we have tried to get across to the banks is that we will push them hard to get good value, but we understand that everyone needs to get something out of it. We are a long-term company, so we want long-term relationships, and I think the banks find this an adult approach.
As a former banker, what strikes you most about your role as a CFO?
It’s been interesting being on the receiving end of presentations and proposals of banks, having delivered them before. But if I were to go back to banking I would certainly approach it differently, as when you are suddenly transposed to the other position it’s very different.
Bank funding is certainly part of running our business, but our core business is hospitality, property and various other interests, and we are responsible for our guests and 7,000 staff. When I’m dealing with banks, I want to get to the heart of the matter quickly. A bank wouldn’t be there if we weren’t confident that they could deliver the service; it’s a question of whether they can do it competitively and ideally add value. We all inevitably get caught up in our own businesses when presented with a client, but sometimes it would be beneficial to ask what the client is looking for before you tell him what you think he wants or needs to know.