And Here Comes The Big Payday For Ananda

End of last month, I highlighted A Massive Payday Awaits Tanjong Shareholders.

I highlighted the following bit.

• ................
  
  If the touted price tags for the power and gaming assets are true, Ananda would in less than two years managed to sell two of Tanjong’s prized assets for about RM12.85 billion — over RM4 billion or some 46% more money than the RM8.8 billion Tanjong valued using the RM21.80 per share minorities were bought-out for in July 2010.
  
  .............
  
  Secondly, Ananda’s investment cost is a lot less than the RM8.8 billion Tanjong was valued using the takeover price, as parties that offered to privatise Tanjong already had 49.96% of the group in hand .......
  

On the Sun: Ananda’s big pay day

• Ananda’s big pay day
  Posted on 7 March 2012 - 09:20pm
  Last updated on 8 March 2012 - 12:31am
  IZWAN IDRIS
  
  KUALA LUMPUR (March 8, 2012): In 2010, the country's second-richest man Ananda Krishnan took Tanjong plc private, valuing the company at RM8.8 billion. Barely two years down the road, he has made a massive gain by breaking up the company and selling it in chunks.
  
  In a statement yesterday, 1Malaysia Development Bhd said it had agreed to pay RM8.5 billion for Tanjong Energy Holdings Sdn Bhd.
  
  Ananda had already sold the group's gaming business under Pan Malaysian Pools Sdn Bhd for RM2.1 billion in August last year.
  
  These transactions valued Tanjong plc's former assets at RM10.6 billion, and netted Ananda at least RM1.8 billion.
  The reclusive tycoon built up his fortune through interests in hugely lucrative ventures ranging from power generation and gaming to exclusive satellite-TV operations, mobile communication, and a fleet of support vessels in the oil and gas industry.
  
  His stable of listed companies on Bursa Malaysia includes Maxis Bhd and Bumi Armada Bhd.
  
  Maxis was taken private, hived off its overseas operations and put back into the market as a Malaysia-only operation. Bumi Armada, too, was delisted and brought back to the market a different animal.
  
  The latest sale will probably mark Ananda's exit from the power business.
  
  Tanjong Energy has operations in six countries — Malaysia, Egypt, Bangladesh, Pakistan, Sri Lanka and the United Arab Emirates. It also has a water desalination capacity of 16 million imperial gallons per day.
  
  Information on its website revealed it owns and operates eight power plants and has investment in five others. Total net power generating capacity stood at 3,951MW, with three of these plants in Malacca having a capacity to produce 1,490MW.
  
  Ananda is one of the so-called first-generation independent power producers (IPPs), and had benefited tremendously from what was widely seen as a lopsided power purchase agreement that favours the generators.
  
  Petronas on Tuesday said total subsidies, or forgone revenues, to IPPs had reached a staggering RM6.7 billion in 2011. Since 1997, total subsidies to the IPPs amounted RM62.4 billion.
  
  It is unclear why the 74-year-old tycoon is selling some of his prized assets.
  
  "Energy is one of the core focus areas for 1MDB, and Tanjong Energy is a prized acquisition,'' 1MDB CEO Shahrol Halmi said in a statement yesterday.
  
  "We are attracted to the strong operating track record of Tanjong Energy, its well-diversified portfolio of quality assets, its strong in-house capabilities and the potential for new growth both here and abroad," he added.
  
  Goldman Sachs (Malaysia) Sdn Bhd is the financial adviser to 1MDB for this transaction. The acquisition, 1MDB said, was subject to financing and regulatory approvals.
  
  The announcement came following a definitive agreement signed between the two parties last Friday.
  
  Shahrol said 1MDB aimed to further enhance the capacity of Tanjong Energy as a leading emerging market independent power producer.
  
  "Given its unique private-public sector dynamics, 1MDB and Tanjong Energy are in a strong position to create new synergies, establish global strategic partnerships and promote innovations in green and sustainable technologies," he said.
  

Congratulations all minority shareholders who generously sold out all their shares during Tanjong privatisation. Without the shareholders selling out, this big payday might not happen! Bravo!

I wonder how these minority shareholders are feeling today. They sold their shares out because a said 'nice premium' was offered. So they sold out. But do they even know the true value of what they had sold? Would I be wrong to say that this is a perfect case of penny wise, pound foolish?

No wonder some say, the stock market is the best place to make money!

ps: I do like today's sun article a lot for stating what had happened in Maxis and Bumi Armada. Let me add in my version. Maxis was delisted at a cheap price and when it was relisted, it was relisted, Maxis only has its Malaysian operations. Gone was the massive investment made by Maxis in India. Bumi Armada? Bumi Armada was delisted in an obscene cheap valuation.

A Massive Payday Awaits Tanjong Shareholders

There's two rather interesting or revealing passages from the following article on the Edge :Ananda could see RM4b gain from Tanjong buyout

•  ................
  If the touted price tags for the power and gaming assets are true, Ananda would in less than two years managed to sell two of Tanjong’s prized assets for about RM12.85 billion — over RM4 billion or some 46% more money than the RM8.8 billion Tanjong valued using the RM21.80 per share minorities were bought-out for in July 2010.
  
  .............
  
  Secondly, Ananda’s investment cost is a lot less than the RM8.8 billion Tanjong was valued using the takeover price, as parties that offered to privatise Tanjong already had 49.96% of the group in hand .......

I remembered when Tanjong was privatised many hailed the privatisation because the offer was said to be extremely generous. They praised the generous premium over the stock price.

It was a fantastic payday.

Yeah... but ... have they even wondered if it was even a fair price?

Anyway.... now... apparently someone's going to have a even more fantastic payday!

Yeah... privatisation.... it's such a wonderful business.

But for who?

Tanjong Now Wants To Build Tropical Homes In Germany

Yes, in my opinion it's a massive mess.

Blogged previously: Going Extremely Tropical In Germany! , Tanjong's Tropical Island Resort Investment , Tanjong's Tropical Island Resort Investment: Part II and Tanjong

What amazed me was that Tanjong came up with this rather wild idea of building a Tropical Resort in Germany. And what even amazed me was how the boss told the press that this investment was not significant.

Well for its fiscal year 2005, it registered a operating loss of 69 million and for its fiscal year 2006 it reported a loss of 59 million and in its 2007 Q4 earnings, it said it had another 59 million in operating loss for this project.

So clearly, this idea was bad and that the losses have been piling up.

And in today's article, I was utterly shocked to read the following news, Tanjong to build holiday homes in Germany

• TANJONG plc has signed an agreement yesterday to develop about 2,000 holiday homes at its Tropical Islands resort in Germany.
  
  Under the agreement, Eske Group A/S will finance development of the vacation home project while Novasol A/S will have the exclusive marketing rights.
  
  Tropical Islands is a holiday resort, located within the world's largest freestanding dome in Germany, developed by Tropical Island Holding GmbH Group, a subsidiary of Tanjong.
  
  The development of 500ha of land will be carried out over three phases.
  
  The first stage comprises construction of 375 units over 30ha which is expected to be ready for occupation in 2010.
  
  Tanjong is not expected to assume nor commit to any financial obligation in respect of the construction and development of the vacation homes.
  
  Tanjong's chairman Datuk Robert Cheim said the involvement of the Eske Group and Novasol will surely contribute to the successful development of Tropical Islands.
  
  "The availability of resort accommodation facilities will help Tropical Islands attract a greater number of visitors from the fast-growing European vacation market, and should expand its current public profile which compromises largely day-trippers. This will place the resort in a much better position to generate greater revenue in the longer term," he said.

Huh? Huh? Huh?

It's now holiday homes? Goodness me, why can't they simply acknowledge that this is Tropical Island venture has been a very unprofitable project?

Why keep pouring more and more money on a lousy idea? Would adding tropical homes really help?

Sometimes I wonder why it's so difficult to admit to a mistake.

Going Extremely Tropical In Germany!

Tanjong PLC reported its earnings yesterday. I for one was excited for I wanted to know how Tanjong's Tropical Island investment is faring now. ( I had blogged on this issue before Tanjong's Tropical Island Resort Investment , Tanjong's Tropical Island Resort Investment: Part II and Tanjong )

Firstly, I was always extremely amazed from day one to read that Tanjong was planning to invest in a tropical island in Germany. Yes, a tropical island in GERMANY.

And more so when I read the following news article back in 2003.

• Friday, June 27, 2003
  Tanjong: German park not a significant investment
  
  TANJONG Plc said a bid for 500ha in Germany to build a holiday park will not require a “significant'' investment, addressing concerns its finances will be strained.
  
  “The project is not significant in the context of Tanjong,'' chairman Datuk Khoo Eng Choo told reporters after a shareholders' meeting in Kuala Lumpur.
  
  “Compared with net asset or capitalisation, it's not significant at all,” he said.

Not significant at all, eh?

Anyway, here is Tanjong's earnings link: Quarterly rpt on consolidated results for the financial period ended 31/7/2007

In its earnings notes:

• The increase in the number of visitors to Tropical Islands led to higher revenue from the Leisure segment to RM42 million from RM35 million in the corresponding period. However higher marketing and advertising expenses incurred in relation to the launching of new attractions in the resort resulted in the operating loss of RM29 million remaining at around that of the corresponding period.

A current net operating loss of rm29 million! And this happen despite higher revenue!

Btw, here is the link to Tanjong previous fiscal year 2006 Q4 earnings. Quarterly rpt on consolidated results for the financial period ended 31/1/2007

• As anticipated, revenue from the Leisure segment has decreased to RM67 million from RM97 million in the previous year due to the closure of the Tropical Islands resort between 1 November 2006 to 26 December 2006 to facilitate planned capital improvements to widen the demographic appeal of the resort. However, revenues and earnings have benefited from measures taken to improve average visitor spend and reduce overall operating expenses. The preceding measures together with the recognition of RM16 million of government grants have contributed to a lower operating loss of RM59 million as compared to the RM69 million loss in the previous year.

Ahem, a lower operating loss of rm59 mil compared to the rm69 million loss. (Loss would have been greater if not for the rm16 million of government grants).

So total losses till end of last fiscal year was rm59 + rm69 mil = rm128 million. And if you add in yesterday's earnings note which Tanjong said it had operating losses of rm29 mil, this would mean that total operating losses now total rm157 million!

So is an operating loss of rm157 million not significant?

So I do wonder... how difficult is it for Tanjong to acknowledge that a Tropical Island business in Germany simply makes no cow sense!

Tanjong's Power Listing?

My dearest Moo Moo Cow,

Saw this news article on Star Bizweek, Tanjong power listing. My initial reaction upon seeing the news headline was, "Oh my, they can't be serious, can they? What about them shareholders of the stock Powertek, which Tanjong privatised a couple of years ago? Surely, they cannot be too happy seeing such news, can they?"

Then I read the article.

Guess what?

The article was filled with the usual according to sources, is expected, it is understood!!!!

Yet again, we are seeing tons of un-known sources being quoted yet again!! And the whole basis of the article is based on expectations!

• Friday April 27, 2007
  
  Tanjong power listing
  
  By C. S. Tan
  
  PETALING JAYA: Tanjong plc is expected to spin off its power division for a listing overseas, which will enable the power and gaming group tap funds for acquisition of more power assets in other countries.
  
  As the company examines this option, sources say they expect such an exercise to unlock the value of its existing power assets, possibly before year's end.
  
  Tanjong started out as a numbers forecast operator (NFO) but later diversified successfully as an independent power producer (IPP).
  
  The power business has worked out so well that it produces larger profits than the NFO operations. The power division generated an operating profit of about RM430mil after interest costs, dwarfing the gaming division's operating profit of RM150mil in the financial year ended Jan 31, 2007.
  
  An initial public offering of the power assets could lead to a value of over RM3bil to emerge in a power company, the sources said.
  
  Visibility of earnings in the power division is clear again, now that negotiations between the Government and IPPs are believed to have been discontinued last month.
  
  The Government had hoped to re-negotiate supplementary agreements that would reduce the current burden of the bill that Tenaga Nasional Bhd has to pay to the IPPs.
  
  It was expected that a re-negotiated agreement would have been neutral to the value of the IPPs as measured by their discounted cash flows but the cash flows would be received over an extended concession period. That would have affected current dividend flows from Tanjong's three IPPs in the country.
  
  Since that may not be an issue anymore, Tanjong will be able to go to the capital markets and commit its Malaysian power assets to a certain level of dividend payout.
  
  The group owns three power plants in Malacca, two in Egypt and a 10% stake in a power generation and water desalination complex in Abu Dhabi, the United Arab Emirates.
  
  Tanjong has shown an ambition to expand its power business. It managed, for instance, to double its total net power generating capacity in the past year or so to 3,055 MW after its acquisition of power assets in Egypt and Abu Dhabi.
  
  The group has the balance sheet to expand further. It has a sizeable free cash flow of about RM500mil a year from its power and gaming businesses. That will enable it to obtain financing for any power assets that it acquires.
  
  Additionally, the group had RM1.29bil cash as at end-January, which should rapidly increase until it makes its next acquisition.
  
  The group is understood to be scouting around for acquisitions in the growth economies of Asia rather than the mature markets in the United States and Europe. Thus, it is searching for power assets in the Middle East, North Africa, Indian sub-continent and South-East Asia.
  
  Such acquisitions need to go through a tendering process and it has experienced a few failures in the past two to three years.
  
  Nonetheless, it took that as a step up the learning curve and the acquisitions of two sizeable power plants in Egypt last year vindicated its claims that it can succeed.
  
  Sources say Tanjong has the capacity and capability to acquire additional power plants every few years.

How?

Would Tanjong deny such a story?

Tanjong

Tanjong announced its earnings yesterday.

What about its German Resort thingy?

Well.. it's net losses increased! (why can't they acknowledge that this simply is a bad project?)

And here's some comments from RHB.

• o RM17.7m operating loss from Tropical Island vs. RM11.4m loss in the 1QFY07 due to a 45% qoq drop in visitor arrivals although this was partly mitigated by a 13% increase in revenue per arrival to €26.

Operating loss increased. A 45% qoq drop in visitors arrivals is most disturbing, isn't it?

LOL!!! Anyway RHB Research is saying that do not be alarmed because all this bad news is already reflected in the share price? (doh!)

• Although the 2Q results represent a "perfect storm" for Tanjong with disappointing earnings from almost all business units, we believe the 6% drop in the share price since June, and 14% for the year to date, has more than compensated for the poor 2Q performance. We expect good news ahead, including progress on the revamp for Tropical Island, as well as more stable power and gaming earnings.

And here's the flashback to what was blogged earlier:

====>>>

Saw this newsclip:

Tanjong's German resort gets another fund injection By Tamimi Omar, 12 Jul 2006 6:18 PMTanjong plc is taking steps to turn around its loss-making Tropical Islands resort in Germany with the injection of another 34 million euros (RM154 million) for its second phase of development over the next two years, bringing the total investment in the project to 110 million euros.
MORE>>

Incredible isn't it?

Let me repost an old posting on Tanjong's Tropical Island Resort Investment (best comment of course was “Compared with net asset or capitalisation, it's not significant at all,” he said.

=======>>>>>>

I was looking at Tanjong latest quarterly earnings when this statement in their earnings notes caught my attention.

• The Leisure segment recorded a RM76 million increase in revenue following the
  commencement of Tropical Islands operations in December 2004. The segment registered an operating loss of RM69 million in the current year due to delays in the completion of certain facilities in Tropical Islands which resulted in lower than expected admissions and revenue.

Hmm... commenced in Decemeber 2004, and had operating loss of rm69 million. No wonder Tanjung earnings wasn't too happening this quarter.

Let's go back a year ago, March 2005 and look at how this Tropical Island did. Now the notes in the earnings report was pretty sketchy, so I will use a snippet from RHB research notes back in March 2005.

• Tropical Island Resorts (TIR) losses to continue in FY01/06 but should be immaterial by FY01/07 and turn around in FY01/08. To recap, TIR reported a higher-than-expected operating loss of RM51 versus earlier expectations of RM30m start-up losses. The higher losses of TIR were due to delay in installing a “translucent” roof. The cold weather condition slowed installing work and the doom’s height of 107m did not help. As a result, TIR’s main attraction (the Rainforest) did not have the intended tropical sunlight effects. The delay has resulted in negative publicity, which in turn affected tourist arrivals.
  
  In addition to the start-up losses, the resort has yet to reach its optimum number of visitors and yield. To date, one of the four translucent roofs has been installed. A check with TIR’s web-site shows the significant difference in having a ranslucent and non-translucent roof (refer to the above picture). Installation of the roof is scheduled for completion in 3QFY01/06. We believe pre-completion tourist arrivals are not likely to hit optimal level, especially when it would miss out on the peak holiday season (summer months) in Europe. Thus, we expect TIR to remain in the red in FY01/06. However, we estimate that the operating losses would be trimmed from RM51m in FY01/05 to about RM33m in FY01/06.
  
  We were given to understand that with costs under control, TIR is expected to turn around and commence positive contribution in FY01/07. After the completion of the translucent roof, the company would adopt more focus and aggressive marketing efforts to attract visitors and hope to benefit from the spillover effect of the 2006 World Cup in Berlin. However, we have adopted more conservative assumptions on tourist arrivals and costs. We expect an immaterial operating loss of RM0.2m. For FY01/08, we are forecasting RM11.6m operating profit on account of higher visitors.

So what is this TIR? Well, TIR stands for Tropical Island Resort. A project started by Tanjung back in 2003. And this Tropical Island Resort was built in Brand, 60 kilometer south of Berlin.

Yes, a tropical island resort in Germany. LOL!

• Tanjong and Mr Colin Au propose to enter into a joint venture agreement to develop the land into a "Tropical Island" holiday destination that provides an all year-round indoor tropical environment. The "Tropical Island" holiday destination will house a variety of tropical settings such as rainforest, sea, lagoon, beaches, water parks, exhibition centres, tropical flower world, resort hotels and spas to cater for all age group visitors.

Yup, this is probably what an investor do not want to see. Companies straying way off course in their own business objective. Totally bad.

Even the idea is lousy, isn't it? Say, you are a German and you want to go for a tropical holiday. Wouldn't you want to just fly away to a real tropical island than end up in Brand, Berlin? It wound really sound a drag of a holiday. Those Germans that I know, they really like to travel.

And needless to say, the stock was hammered when Tanjong made the announcement back in June 2003. Here is a short snippet then.

• Business Times - 24 Jun 2003
  KUALA LUMPUR
  Tanjong shares plunge on German theme park move
  
  Stock falls 6% as investors deem it a poor investment
  
  MALAYSIAN lottery and power firm Tanjong plc's surprise plan to build a mock tropical retreat in Germany knocked 6 per cent off its shares yesterday as investors guessed it may have made a wrong bet.
  
  Tanjong said on Friday it had bid an undisclosed amount for the land and assets of Germany's Cargolifter AG in a joint offer with Colin Au, the ex-chief executive of cruise operator Star Cruises Ltd.
  
  'Trying to have a theme park in Europe is not a good idea. Just look at Euro Disney,' said Nik Azhar Abdullah of Commerce Asset Fund Managers..... 'I'm a bit surprised with the type of investment. The European economy is not exactly booming right now,' said JP Morgan's Melvyn Boey.

And of course, the company was forced to defend itself...

• Friday, June 27, 2003
  Tanjong: German park not a significant investment
  
  TANJONG Plc said a bid for 500ha in Germany to build a holiday park will not require a “significant'' investment, addressing concerns its finances will be strained.
  
  “The project is not significant in the context of Tanjong,'' chairman Datuk Khoo Eng Choo told reporters after a shareholders' meeting in Kuala Lumpur.
  
  “Compared with net asset or capitalisation, it's not significant at all,” he said.

How would you feel, as an investor, when you hear the chairman declaring that such an investment to be not significant?

So how much was the total investment? It wasn't until July 7th 2003, that folks like me could read it in the papers.

• Tanjong, Au to spend RM304.6m on German tropical resort project
  GAMING and power company Tanjong plc is teaming up with Colin Au to develop a tropical resort in Germany at a total cost of RM304.5 million.
  
  The company said the total cost includes the RM76.1 million or 17.5 million euros cash it is paying for the assets of CargoLifter AG Group.
  
  The assets include a 500ha piece of land situated 60km south of Berlin, Germany. The land currently houses a free-standing hangar measuring 360 metres long, 210 metres wide and 107 metres high.
  
  Tanjong said that two German companies, Tropical Island Management GmbH and Tropical Island Asset Management GmbH will develop and operate an entertainment and leisure based tourist holiday destination with tropical island setting within the hangar. Both companies are 50 per cent owned by Tanjong Entertainment Sdn Bhd, a wholly owned subsidiary of Tanjong.
  
  “The project cost will be funded through a combination of equity funds, shareholder’s advances and bank borrowings to be secured by two German companies,” Tanjong said.
  
  It added that the project is only expected to be completed in the fourth quarter of 2004. “As such, it will not have any material effect on the group’s earnings for the current financial year ending January 31 2004,” it said.
  
  “This project is very much an extension of Tanjong’s existing involvement in the leisure and entertainment business. Over the years, we have been continuously identifying opportunities for the expansion of our business in this sector,” says Tanjong’s chairman Datuk Khoo Eng Choo in a statement to the Kuala Lumpur Stock Exchange.
  
  Au said: “We are confident that this project, when completed, will draw in repeat visitors, especially from Germany and its neighbouring European countries.”
  
  He said the tropical resort is also expected to feature monthly exhibits of a tropical country or region.
  
  “As a start, we hope to work with the Malaysian Tourist Promotion Board to feature Malaysia with its rich heritage of culture, arts, food, architecture, islands, resorts and its rainforest. Also, Malaysia’s cultural groups, musicians and dancers will have the opportunity to perform at the Tropical Island,” he added.
  
  Tanjong also agreed to set up a joint venture company with Au Leisure Investments Pte Ltd to identify, develop and operate entertainment and leisure based holiday destinations with tropical island setting.
  
  The joint venture company, Central Pacific Assets Ltd will have an initial share capital of 5 million euros (1 euro = RM4.35) and an eventual enlarged paid-up share capital of up to 30 million euros. Central will be owned equally by Au Leisure and Tanjong Entertainment.
  
  Tanjong said Au, who has 30 years of experience and expertise in international leisure and tourism industries shall be appointed as chief executive officer of Central. “The position of chairman and chief financial officer of Central shall be nominated by Tanjong Entertainment,” it added.

According to the closed Surf 88 back in 2003...

• The investment cost… With the details now unveiled, the expected investment in the venture is not as massive as earlier feared by investors. The jv will initially be capitalized at Euro 5M (RM21.8M) and eventually up to Euro 30M (RM130.5M). Tanjong’s 50% share hence works out to RM65.3M at the final stage (16.9 sen per Tanjong share or 1.6% of current share price). This is considered a relatively small investment for Tanjong, where funding is not a problem given more than RM300M free cash flow annually (cash flow from operations after dividend and capital expenditure).

So how?

Well, it looks like this 'not significant' investment for Tanjong cost some rm65.3 million.

And the end results?

This fiscal year 2006 earnings for Tanjong showed that the Tropical Island's reported opertaing losses of rm69 million!!

Ahh... when company embarks on a funky corporate exercise, like investing in a tropical island resort, most of the time, the company would end up producing some real funky results too for its investors.

Yeah dude... just play that funky music man!

---

edit 12.09 pm 29th March

found some pictures... via a google search on the phrase 'tropical island resort; brand; germany'..

err... how? look fun ar?

and here is a newsclip on it... Gone troppo in Germany

Tanjong's Tropical Island Resort Investment: Part II

Saw this newsclip:

Tanjong's German resort gets another fund injection By Tamimi Omar, 12 Jul 2006 6:18 PMTanjong plc is taking steps to turn around its loss-making Tropical Islands resort in Germany with the injection of another 34 million euros (RM154 million) for its second phase of development over the next two years, bringing the total investment in the project to 110 million euros.
MORE>>

Incredible isn't it?

Let me repost an old posting on Tanjong's Tropical Island Resort Investment (best comment of course was “Compared with net asset or capitalisation, it's not significant at all,” he said.

=======>>>>>>

I was looking at Tanjong latest quarterly earnings when this statement in their earnings notes caught my attention.

• The Leisure segment recorded a RM76 million increase in revenue following the
  commencement of Tropical Islands operations in December 2004. The segment registered an operating loss of RM69 million in the current year due to delays in the completion of certain facilities in Tropical Islands which resulted in lower than expected admissions and revenue.

Hmm... commenced in Decemeber 2004, and had operating loss of rm69 million. No wonder Tanjung earnings wasn't too happening this quarter.

Let's go back a year ago, March 2005 and look at how this Tropical Island did. Now the notes in the earnings report was pretty sketchy, so I will use a snippet from RHB research notes back in March 2005.

• Tropical Island Resorts (TIR) losses to continue in FY01/06 but should be immaterial by FY01/07 and turn around in FY01/08. To recap, TIR reported a higher-than-expected operating loss of RM51 versus earlier expectations of RM30m start-up losses. The higher losses of TIR were due to delay in installing a “translucent” roof. The cold weather condition slowed installing work and the doom’s height of 107m did not help. As a result, TIR’s main attraction (the Rainforest) did not have the intended tropical sunlight effects. The delay has resulted in negative publicity, which in turn affected tourist arrivals.
  
  In addition to the start-up losses, the resort has yet to reach its optimum number of visitors and yield. To date, one of the four translucent roofs has been installed. A check with TIR’s web-site shows the significant difference in having a ranslucent and non-translucent roof (refer to the above picture). Installation of the roof is scheduled for completion in 3QFY01/06. We believe pre-completion tourist arrivals are not likely to hit optimal level, especially when it would miss out on the peak holiday season (summer months) in Europe. Thus, we expect TIR to remain in the red in FY01/06. However, we estimate that the operating losses would be trimmed from RM51m in FY01/05 to about RM33m in FY01/06.
  
  We were given to understand that with costs under control, TIR is expected to turn around and commence positive contribution in FY01/07. After the completion of the translucent roof, the company would adopt more focus and aggressive marketing efforts to attract visitors and hope to benefit from the spillover effect of the 2006 World Cup in Berlin. However, we have adopted more conservative assumptions on tourist arrivals and costs. We expect an immaterial operating loss of RM0.2m. For FY01/08, we are forecasting RM11.6m operating profit on account of higher visitors.

So what is this TIR? Well, TIR stands for Tropical Island Resort. A project started by Tanjung back in 2003. And this Tropical Island Resort was built in Brand, 60 kilometer south of Berlin.

Yes, a tropical island resort in Germany. LOL!

• Tanjong and Mr Colin Au propose to enter into a joint venture agreement to develop the land into a "Tropical Island" holiday destination that provides an all year-round indoor tropical environment. The "Tropical Island" holiday destination will house a variety of tropical settings such as rainforest, sea, lagoon, beaches, water parks, exhibition centres, tropical flower world, resort hotels and spas to cater for all age group visitors.

Yup, this is probably what an investor do not want to see. Companies straying way off course in their own business objective. Totally bad.

Even the idea is lousy, isn't it? Say, you are a German and you want to go for a tropical holiday. Wouldn't you want to just fly away to a real tropical island than end up in Brand, Berlin? It wound really sound a drag of a holiday. Those Germans that I know, they really like to travel.

And needless to say, the stock was hammered when Tanjong made the announcement back in June 2003. Here is a short snippet then.

• Business Times - 24 Jun 2003
  KUALA LUMPUR
  Tanjong shares plunge on German theme park move
  
  Stock falls 6% as investors deem it a poor investment
  
  MALAYSIAN lottery and power firm Tanjong plc's surprise plan to build a mock tropical retreat in Germany knocked 6 per cent off its shares yesterday as investors guessed it may have made a wrong bet.
  
  Tanjong said on Friday it had bid an undisclosed amount for the land and assets of Germany's Cargolifter AG in a joint offer with Colin Au, the ex-chief executive of cruise operator Star Cruises Ltd.
  
  'Trying to have a theme park in Europe is not a good idea. Just look at Euro Disney,' said Nik Azhar Abdullah of Commerce Asset Fund Managers..... 'I'm a bit surprised with the type of investment. The European economy is not exactly booming right now,' said JP Morgan's Melvyn Boey.

And of course, the company was forced to defend itself...

• Friday, June 27, 2003
  Tanjong: German park not a significant investment
  
  TANJONG Plc said a bid for 500ha in Germany to build a holiday park will not require a “significant'' investment, addressing concerns its finances will be strained.
  
  “The project is not significant in the context of Tanjong,'' chairman Datuk Khoo Eng Choo told reporters after a shareholders' meeting in Kuala Lumpur.
  
  “Compared with net asset or capitalisation, it's not significant at all,” he said.

How would you feel, as an investor, when you hear the chairman declaring that such an investment to be not significant?

So how much was the total investment? It wasn't until July 7th 2003, that folks like me could read it in the papers.

• Tanjong, Au to spend RM304.6m on German tropical resort project
  GAMING and power company Tanjong plc is teaming up with Colin Au to develop a tropical resort in Germany at a total cost of RM304.5 million.
  
  The company said the total cost includes the RM76.1 million or 17.5 million euros cash it is paying for the assets of CargoLifter AG Group.
  
  The assets include a 500ha piece of land situated 60km south of Berlin, Germany. The land currently houses a free-standing hangar measuring 360 metres long, 210 metres wide and 107 metres high.
  
  Tanjong said that two German companies, Tropical Island Management GmbH and Tropical Island Asset Management GmbH will develop and operate an entertainment and leisure based tourist holiday destination with tropical island setting within the hangar. Both companies are 50 per cent owned by Tanjong Entertainment Sdn Bhd, a wholly owned subsidiary of Tanjong.
  
  “The project cost will be funded through a combination of equity funds, shareholder’s advances and bank borrowings to be secured by two German companies,” Tanjong said.
  
  It added that the project is only expected to be completed in the fourth quarter of 2004. “As such, it will not have any material effect on the group’s earnings for the current financial year ending January 31 2004,” it said.
  
  “This project is very much an extension of Tanjong’s existing involvement in the leisure and entertainment business. Over the years, we have been continuously identifying opportunities for the expansion of our business in this sector,” says Tanjong’s chairman Datuk Khoo Eng Choo in a statement to the Kuala Lumpur Stock Exchange.
  
  Au said: “We are confident that this project, when completed, will draw in repeat visitors, especially from Germany and its neighbouring European countries.”
  
  He said the tropical resort is also expected to feature monthly exhibits of a tropical country or region.
  
  “As a start, we hope to work with the Malaysian Tourist Promotion Board to feature Malaysia with its rich heritage of culture, arts, food, architecture, islands, resorts and its rainforest. Also, Malaysia’s cultural groups, musicians and dancers will have the opportunity to perform at the Tropical Island,” he added.
  
  Tanjong also agreed to set up a joint venture company with Au Leisure Investments Pte Ltd to identify, develop and operate entertainment and leisure based holiday destinations with tropical island setting.
  
  The joint venture company, Central Pacific Assets Ltd will have an initial share capital of 5 million euros (1 euro = RM4.35) and an eventual enlarged paid-up share capital of up to 30 million euros. Central will be owned equally by Au Leisure and Tanjong Entertainment.
  
  Tanjong said Au, who has 30 years of experience and expertise in international leisure and tourism industries shall be appointed as chief executive officer of Central. “The position of chairman and chief financial officer of Central shall be nominated by Tanjong Entertainment,” it added.

According to the closed Surf 88 back in 2003...

• The investment cost… With the details now unveiled, the expected investment in the venture is not as massive as earlier feared by investors. The jv will initially be capitalized at Euro 5M (RM21.8M) and eventually up to Euro 30M (RM130.5M). Tanjong’s 50% share hence works out to RM65.3M at the final stage (16.9 sen per Tanjong share or 1.6% of current share price). This is considered a relatively small investment for Tanjong, where funding is not a problem given more than RM300M free cash flow annually (cash flow from operations after dividend and capital expenditure).

So how?

Well, it looks like this 'not significant' investment for Tanjong cost some rm65.3 million.

And the end results?

This fiscal year 2006 earnings for Tanjong showed that the Tropical Island's reported opertaing losses of rm69 million!!

Ahh... when company embarks on a funky corporate exercise, like investing in a tropical island resort, most of the time, the company would end up producing some real funky results too for its investors.

Yeah dude... just play that funky music man!

---

edit 12.09 pm 29th March

found some pictures... via a google search on the phrase 'tropical island resort; brand; germany'..

err... how? look fun ar?

and here is a newsclip on it... Gone troppo in Germany

Tanjong's Tropical Island Resort Investment

I was looking at Tanjong latest quarterly earnings when this statement in their earnings notes caught my attention.

• The Leisure segment recorded a RM76 million increase in revenue following the
  commencement of Tropical Islands operations in December 2004. The segment registered an operating loss of RM69 million in the current year due to delays in the completion of certain facilities in Tropical Islands which resulted in lower than expected admissions and revenue.

Hmm... commenced in Decemeber 2004, and had operating loss of rm69 million. No wonder Tanjung earnings wasn't too happening this quarter.

Let's go back a year ago, March 2005 and look at how this Tropical Island did. Now the notes in the earnings report was pretty sketchy, so I will use a snippet from RHB research notes back in March 2005.

• Tropical Island Resorts (TIR) losses to continue in FY01/06 but should be immaterial by FY01/07 and turn around in FY01/08. To recap, TIR reported a higher-than-expected operating loss of RM51 versus earlier expectations of RM30m start-up losses. The higher losses of TIR were due to delay in installing a “translucent” roof. The cold weather condition slowed installing work and the doom’s height of 107m did not help. As a result, TIR’s main attraction (the Rainforest) did not have the intended tropical sunlight effects. The delay has resulted in negative publicity, which in turn affected tourist arrivals.
  
  In addition to the start-up losses, the resort has yet to reach its optimum number of visitors and yield. To date, one of the four translucent roofs has been installed. A check with TIR’s web-site shows the significant difference in having a ranslucent and non-translucent roof (refer to the above picture). Installation of the roof is scheduled for completion in 3QFY01/06. We believe pre-completion tourist arrivals are not likely to hit optimal level, especially when it would miss out on the peak holiday season (summer months) in Europe. Thus, we expect TIR to remain in the red in FY01/06. However, we estimate that the operating losses would be trimmed from RM51m in FY01/05 to about RM33m in FY01/06.
  
  We were given to understand that with costs under control, TIR is expected to turn around and commence positive contribution in FY01/07. After the completion of the translucent roof, the company would adopt more focus and aggressive marketing efforts to attract visitors and hope to benefit from the spillover effect of the 2006 World Cup in Berlin. However, we have adopted more conservative assumptions on tourist arrivals and costs. We expect an immaterial operating loss of RM0.2m. For FY01/08, we are forecasting RM11.6m operating profit on account of higher visitors.

So what is this TIR? Well, TIR stands for Tropical Island Resort. A project started by Tanjung back in 2003. And this Tropical Island Resort was built in Brand, 60 kilometer south of Berlin.

Yes, a tropical island resort in Germany. LOL!

• Tanjong and Mr Colin Au propose to enter into a joint venture agreement to develop the land into a "Tropical Island" holiday destination that provides an all year-round indoor tropical environment. The "Tropical Island" holiday destination will house a variety of tropical settings such as rainforest, sea, lagoon, beaches, water parks, exhibition centres, tropical flower world, resort hotels and spas to cater for all age group visitors.

Yup, this is probably what an investor do not want to see. Companies straying way off course in their own business objective. Totally bad.

Even the idea is lousy, isn't it? Say, you are a German and you want to go for a tropical holiday. Wouldn't you want to just fly away to a real tropical island than end up in Brand, Berlin? It wound really sound a drag of a holiday. Those Germans that I know, they really like to travel.

And needless to say, the stock was hammered when Tanjong made the announcement back in June 2003. Here is a short snippet then.

• Business Times - 24 Jun 2003
  KUALA LUMPUR
  Tanjong shares plunge on German theme park move
  
  Stock falls 6% as investors deem it a poor investment
  
  MALAYSIAN lottery and power firm Tanjong plc's surprise plan to build a mock tropical retreat in Germany knocked 6 per cent off its shares yesterday as investors guessed it may have made a wrong bet.
  
  Tanjong said on Friday it had bid an undisclosed amount for the land and assets of Germany's Cargolifter AG in a joint offer with Colin Au, the ex-chief executive of cruise operator Star Cruises Ltd.
  
  'Trying to have a theme park in Europe is not a good idea. Just look at Euro Disney,' said Nik Azhar Abdullah of Commerce Asset Fund Managers..... 'I'm a bit surprised with the type of investment. The European economy is not exactly booming right now,' said JP Morgan's Melvyn Boey.

And of course, the company was forced to defend itself...

• Friday, June 27, 2003
  Tanjong: German park not a significant investment
  
  TANJONG Plc said a bid for 500ha in Germany to build a holiday park will not require a “significant'' investment, addressing concerns its finances will be strained.
  
  “The project is not significant in the context of Tanjong,'' chairman Datuk Khoo Eng Choo told reporters after a shareholders' meeting in Kuala Lumpur.
  
  “Compared with net asset or capitalisation, it's not significant at all,” he said.

How would you feel, as an investor, when you hear the chairman declaring that such an investment to be not significant?

So how much was the total investment? It wasn't until July 7th 2003, that folks like me could read it in the papers.

• Tanjong, Au to spend RM304.6m on German tropical resort project
  GAMING and power company Tanjong plc is teaming up with Colin Au to develop a tropical resort in Germany at a total cost of RM304.5 million.
  
  The company said the total cost includes the RM76.1 million or 17.5 million euros cash it is paying for the assets of CargoLifter AG Group.
  
  The assets include a 500ha piece of land situated 60km south of Berlin, Germany. The land currently houses a free-standing hangar measuring 360 metres long, 210 metres wide and 107 metres high.
  
  Tanjong said that two German companies, Tropical Island Management GmbH and Tropical Island Asset Management GmbH will develop and operate an entertainment and leisure based tourist holiday destination with tropical island setting within the hangar. Both companies are 50 per cent owned by Tanjong Entertainment Sdn Bhd, a wholly owned subsidiary of Tanjong.
  
  “The project cost will be funded through a combination of equity funds, shareholder’s advances and bank borrowings to be secured by two German companies,” Tanjong said.
  
  It added that the project is only expected to be completed in the fourth quarter of 2004. “As such, it will not have any material effect on the group’s earnings for the current financial year ending January 31 2004,” it said.
  
  “This project is very much an extension of Tanjong’s existing involvement in the leisure and entertainment business. Over the years, we have been continuously identifying opportunities for the expansion of our business in this sector,” says Tanjong’s chairman Datuk Khoo Eng Choo in a statement to the Kuala Lumpur Stock Exchange.
  
  Au said: “We are confident that this project, when completed, will draw in repeat visitors, especially from Germany and its neighbouring European countries.”
  
  He said the tropical resort is also expected to feature monthly exhibits of a tropical country or region.
  
  “As a start, we hope to work with the Malaysian Tourist Promotion Board to feature Malaysia with its rich heritage of culture, arts, food, architecture, islands, resorts and its rainforest. Also, Malaysia’s cultural groups, musicians and dancers will have the opportunity to perform at the Tropical Island,” he added.
  
  Tanjong also agreed to set up a joint venture company with Au Leisure Investments Pte Ltd to identify, develop and operate entertainment and leisure based holiday destinations with tropical island setting.
  
  The joint venture company, Central Pacific Assets Ltd will have an initial share capital of 5 million euros (1 euro = RM4.35) and an eventual enlarged paid-up share capital of up to 30 million euros. Central will be owned equally by Au Leisure and Tanjong Entertainment.
  
  Tanjong said Au, who has 30 years of experience and expertise in international leisure and tourism industries shall be appointed as chief executive officer of Central. “The position of chairman and chief financial officer of Central shall be nominated by Tanjong Entertainment,” it added.

According to the closed Surf 88 back in 2003...

• The investment cost… With the details now unveiled, the expected investment in the venture is not as massive as earlier feared by investors. The jv will initially be capitalized at Euro 5M (RM21.8M) and eventually up to Euro 30M (RM130.5M). Tanjong’s 50% share hence works out to RM65.3M at the final stage (16.9 sen per Tanjong share or 1.6% of current share price). This is considered a relatively small investment for Tanjong, where funding is not a problem given more than RM300M free cash flow annually (cash flow from operations after dividend and capital expenditure).

So how?

Well, it looks like this 'not significant' investment for Tanjong cost some rm65.3 million.

And the end results?

This fiscal year 2006 earnings for Tanjong showed that the Tropical Island's reported opertaing losses of rm69 million!!

Ahh... when company embarks on a funky corporate exercise, like investing in a tropical island resort, most of the time, the company would end up producing some real funky results too for its investors.

Yeah dude... just play that funky music man!

---

edit 12.09 pm 29th March

found some pictures... via a google search on the phrase 'tropical island resort; brand; germany'..

err... how? look fun ar?

and here is a newsclip on it... Gone troppo in Germany