Sol Meliá consolidates resistance to the economic cycle with net profit of 1.2 million Euros in a difficult period for travel & tourism
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Sol Meliá consolidates resistance to the economic cycle with net profit of 1.2 million Euros in a difficult period for travel & tourism
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Category: Worldwide
This is a press release selected by our editorial committee and published online for free on 2009-08-07
• The company generates a small profit thanks to the successful implementation of its Contingency Plan and improvements in financial conditions.
• Revenues fell by 11.9% and EBITDA and Net Profit by 30.9% and 96.8% respectively, after the company reduced costs by 7.4%.
• The company leverages the strength of its brands and market leadership to add 10 new hotels to its portfolio and close deals which improve its balance sheet and liquidity.
Sol Meliá presented results for the first half of 2009 today which show a small profit in spite of the severe contraction in GDP which has led to reduced levels of travel and tourism. Nevertheless, the first signs of stabilisation in the economy – the reduction in the rate of deterioration of the leading macroeconomic indicators – have been reflected in a progressive improvement in centralised sales over the semester which, combined with the stimulus of last minute sales for the summer season, point towards a slight recovery in the third quarter in the resort hotel business.
Sol Meliá revenues between January and June reached 544.9 million euros, 11.9% less than in the previous year, while EBITDA fell by 30.9% over the same period, from 124.3 to 85.9 million euros. The comparison also shows the consolidation of the fall in Net Profits seen in the first quarter of 2009, from 36.7 to 1.2 million euros.
The crisis has affected city hotels in particular due to corporate travel restrictions and a reduction in incentive trips and corporate meetings. The resort hotel business has also been affected by progressive reductions in the capacity contracted by Tour Operators and the effects of the depreciation of the pound on the British market. The consequence is that Sol Meliá has seen RevPAR fall by 17.7% to June, although showing greater resistance than some of its global competitors who have seen RevPAR decrease by over 20%.
Sol Meliá announced a further substantial improvement (22.5%) in financial results thanks to the efficient management of company debt, the reduction in the Euribor rate and a more favourable Euro-dollar exchange rate. The Euribor rate and interest rate situation in general has also allowed the company to alter its fixed-variable rate debt ratios from 82% variable/ 18% fixed to a far more balanced 58% variable-42 % fixed without any additional costs.
With regard to sustainability issues, Sol Meliá is currently involved in a certification process to become the first “Biosphere Hotel Company” through the Responsible Tourism Institute, supported by UNESCO. The company expects to achieve certification in the autumn after successfully overcoming a complex auditing process. The certification, already held by several individual company hotels – the latest to be certified being the Gran Meliá Palacio de Isora in Tenerife – applies social, environmental and cultural criteria and is considered by Sol Meliá to be a “driver of change and greater awareness” in all three areas.
Precise planning, rigorous implementation
The Sol Meliá results for the semester demonstrate the appropriateness of the measures included in the 2009 Contingency Plan and the rigour shown by the company in their implementation. The actions focused on increasing revenues led to an increase of 21.5 million euros in revenues in the first half of the year, focused on:
a) The launch of promotions based on unique selling points for customers providing them with added values along with their accommodation.
b) Enhancing relationships and synergies with Online Travel Agents, tour operators, travel agents and airlines.
c) Enhanced Customer Relationship Management (CRM) to improve the personalisation (and thus efficiency) of campaigns and a further boost to loyalty strategies both for individual clients, intermediaries and staff.
d) Enhancement of the added value created by campaigns generated by solmelia.com.
In the cost optimisation area the company achieved global savings of more than 36.6 million euros – a figure which may be even higher when the full effects of cost-saving measures become visible – fully in line with the annual objective of savings above 55 million euros. The company has focused on generating greater efficiencies while avoiding any negative impact on the guest experience. The savings include 10.6 million euros from management improvements in corporate services, with other measures in hotels and other business units adding another 26 million euros in savings up to June.
With regard to Risk Management, Sol Meliá has achieved equally positive results, as seen in the absence of any increase in debt delinquency and average collection periods which remain perfectly acceptable in the current economic climate. The hotel company does not wish to leave anything to chance and has updated the company Global Risk Map while also developing an Action Protocol which allows the company to better guarantee the protection of its customers and staff and the continuity of the business before potential risks such as the extension of the H1N1 Influenza A virus worldwide. The company has valuable experience in the management of this type of situations thanks to its response to the Avian Flu virus which hit hotels in Asia in the recent past.
The company is particularly satisfied with results in the area of safeguarding equilibrium in its balance sheet and cash-flow. With the incorporation of the Spanish Instituto de Crédito Oficial (Official Credit Institute) to the syndicated loan agreed with four other financial institutions in April, company liquidity easily covers its debt obligations. The renovation of all of the credit lines which expired in the first half of the year, together with the greater balance between fixed and variable rate debt mentioned previously, alongside operations to gain liquidity such as the sale and lease back with preferential repurchase rights of the Hotel Meliá Madrid Princesa to BBVA Renting, (retaining the management of the emblematic hotel) are other factors which justify the company’s confidence in its financial status.
As the company Vice Chairman and CEO Gabriel Escarrer Jaume announced in February, “Sol Meliá does not aim just to resist the current situation, we also aim to become stronger internally and make the most of any market opportunities to grow and to come out of one of the worst crisis ever faced by the industry in an even stronger position than before”. In this respect, the company (which has limited investment in the first semester to 46 million euros, in line with the objective for the full year 2009) has focused on growth through management, lease and franchise contracts which, thanks to the strength of its brands and sales and distribution network, have allowed Sol Meliá to add 10 new hotels to its portfolio, including, amongst others, such emblematic hotels as the Meliá Hotel de la Reconquista in Oviedo, the Meliá Bilbao – currently Sheraton Bilbao- or the new Meliá Valencia, (until recently Hotel Urbem, alongside the City of the Arts and Sciences) and Meliá Lake Batak in Bulgaria. In other company brands, highlights include the addition of the future Innside hotels in Copenhagen and Dresden, and the recently incorporated Tryp hotels in Getafe and San Rafael, amongst others.
With regard to the Premium hotels category, the company will inaugurate the Gran Meliá Shanghai over the coming months and prior to the Universal Exhibition to be hosted by Shanghai in 2010, and the Gran Meliá Crete, a paradise resort consisting of 300 suites and luxury villas overlooking the Mediterranean.
Evolution and outlook
Despite the continuing uncertainty and limited visibility, we share the perception of the main Spanish tour operators for the summer season with a view to a recovery in last minute demand in major feeder markets such as the UK, Spain, Germany and Scandinavia. Spanish resort hotels are also being favoured by the preference of European travellers for short and medium haul destinations.
The results and forecasts indicate that resort hotels will clearly outperform city hotels, due largely to the fact that business travel is still affected by corporate travel restrictions worldwide. The slight increase registered in requests for corporate events for sales activities shows that interest is growing, but this is yet to be reflected in concrete improvements in sales.
The company reiterates its full awareness of the gravity of the economic situation and, in spite of recent indicators of a possible slowdown in the deterioration of the economy, faced with the possibility that the crisis may last for far longer, is committed to the greatest degree of prudence and the continuity of contingency measures and their constant updating in response to changes in the market, permanently monitoring those changes in spite of the very limited visibility.
Together with prudence and rigorous planning, Sol Meliá is also favoured by the skills of its team members, geographical and business diversification, the fact that 24,000 of its rooms – a third of its hotels - are company owned, 75% of which are in prime locations, all being factors which allow the company to benefit from important opportunities which may arise in the market and which also guarantee that the company will come out of the crisis even stronger than ever before.
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