Sol MeliÁ stays in profit in spite of the worst quarter for travel & tourism in the last 20 years
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Sol MeliÁ stays in profit in spite of the worst quarter for travel & tourism in the last 20 years
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Category: Worldwide - Industry economy
- Figures / Studies
This is a press release selected by our editorial committee and published online for free on 2009-05-12
Sol MeliÁ stays in profit in spite of the worst quarter for travel & tourism in the last 20 years and is fully focused on a rigorous contingency plan to emerge stronger from the crisis
• The first quarter results show a decrease of 9.6% in revenues together with reductions in EBITDA and Net Profits of 37.4% and 97.5% respectively.
• Together with a Cost Rationalisation Plan which is expected to generate savings of 55.6 million euros for the year, the Company will also leverage its extensive product diversification and powerful brand structure to generate greater revenues.
• During this quarter, the Company has signed the incorporation of new 6 hotels and announced future expected growth through management, lease and franchise agreements during a period which will generate “major opportunities” in the hotel industry.
The Spanish hotel company Sol Meliá announced results today for the first quarter of 2009, a period which statistics indicate as being the worst for the Spanish tourism industry for the last twenty years. The Company’s results reflect the weakness in travel demand – unlikely to recover in the short term according to the European Commission or the IMF – and also contrasts strongly with the first quarter of 2008, a period in which the impact of the crisis on the travel industry was still relatively modest.
Sol Meliá revenues between January and March were 266.7 million euros, 9.6% less than in the same period the previous year. EBITDA fell by 37.4% over the same period, from 62.9 to 39.4 million euros. The comparison also shows a decrease in Net Profits of 97.5%, to a positive result of 0.5 million euros.
The slowdown in activity, particularly in business travel, the reduction in the length of hotel stays and the average spend of guests in the resort hotel market, and the lack of visibility derived from the generalised trend towards last minute bookings have caused a 14.2% decrease in RevPAR (Revenue Per Available Room).
The most positive aspect of Company results is a significant improvement in Financial Results which, in spite of the tightening market conditions, reached a figure of 28.2% thanks to the drop in the Euribor interest rate. Sol Meliá has also reported the signature of a syndicated loan of 80 million euros which, together with a mortgage loan of 20 million euros, places the Company in a comfortable financial position and with the liquidity to face its debt obligations for 2009 and 2010, a reminder of the importance of maintaining solvency and cash at optimum levels.
CONTINGENCY PLAN 2009
Faced with the weakness and uncertainty of the economic environment, Sol Meliá is focusing all of its resources and experience on the implementation and development of a Contingency Plan which is further enhancing internal strengths such as cost discipline and financial solidity to allow the Company to increase its competitiveness with a view to when the crisis is over. The Plan focuses on four different Action Areas: Increased Revenues, Cost Rationalisation, Risk Management and Cash Flow Management and Financial Equilibrium.
1) With regard to the first Area, Revenues, Sol Meliá has defined objectives related to sales efficiency, feeder market management and the consolidation of relationships both with consumers and with key travel intermediaries. Mention should also be made of the fact that this is a two track approach focused on increasing both “room and board” revenues and “other revenues”.
2) Regarding the Cost Optimisation Programme, as we reported last quarter, Sol Meliá expects the measures implemented at both Headquarters and Business Unit levels to generate significant savings which – after the latest cuts approved at the corporate level – are expected to reach 55.6 million euros. As expected of a company focused on customer service, all of the cost rationalisation measures approved involve a rigorous commitment to not affect the guest experience in hotels. Sol Meliá has achieved significant savings through the generation of greater internal efficiency and renegotiation of contracts and purchases, amongst other formulas which do not directly affect that experience.
3) The third action area includes all of the Company activities which aim to ensure proactive Risk Management. Sol Meliá is working on the adaptation of the Risk Map to the current market situation, and even though none of the numerous bankruptcies seen in the travel distribution, tour operation or airline business have had a significant impact on the Company, Sol Meliá continues to develop preventive actions aiming to avoid greater delinquency, keep average collection periods within reasonable ranges, and activate insurance coverage in general.
4) Finally, Sol Meliá considers it a priority to optimise Cash Flow Management and Financial Equilibrium, for which it has created a range of projects based on financing and financial conditions. The projects in this Area have led to an improved debt structure, improved amortisation schedules, and total confidence with regard to liquidity for 2009 and 2010. With regard to investments, Sol Meliá maintains its objective to not exceed 90 million euros in investments for 2009, primarily focused on keeping hotels in optimum condition. New investment on growth of the hotel portfolio will be negligible as the Company has already announced that future incorporations will be made through methods which are not capital intensive such as Management, Lease or Franchise Agreements.
GROWTH AND OUTLOOK
The Company is convinced that its natural strengths together with the Contingency Plan described above will be levers which will reinforce the competitiveness of the company when the crisis is over. The Company would also like to highlight the continuity and consistency of its growth policy. Over the first three months of 2009 the Company has signed the incorporation of 6 hotels (1,331 rooms), of which 88% are under management and 12% under lease agreements. Sol Meliá is particularly proud of the adjudication of the management of the “Hotel de la Reconquista” in Oviedo, one of the most renowned and emblematic hotels in Spain. Management of the hotel was granted to Sol Meliá after fierce competition with leading international brands which also wished to manage the property such as “The Luxury Collection” by Starwood or the “Waldorf Astoria” by Hilton.
Without any doubt, one of the decisive factors in the adjudication was the strength of the Meliá brand, the passion for service and strong international sales network, together with an attractive repositioning package developed for the hotel. For Sol Meliá the adjudication is a symbol and symptom of the power and the importance of the Company’s strategy to enhance the value of its brand portfolio, a fundamental asset for both its quantitative and qualitative growth.
The Company is working on the future incorporation of 19 hotels, 6 of which are scheduled to be added in 2009, with a total of 2,073 new rooms in its portfolio.
Despite the poor visibility regarding the outlook for the future, Sol Meliá feels positive and also feels the support of its more than 34,000 employees in combating the effects of a crisis which, in the words of the Vice Chairman and CEO, Gabriel Escarrer Jaume, “we face with the confidence of having managed well up to now, although fully aware of the challenge to ensure that when the recovery comes we are in a position to compete and to take advantage of all of the opportunities generated by the crisis” .
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