Sol Melia improves profits in a First Quarter which has seen the first signs of international recovery
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Sol Melia improves profits in a First Quarter which has seen the first signs of international recovery
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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 2010-05-11
• EBITDA grew for the first time since 2007
• The company reduced net debt by 8% to 80.8 million euros and maintains tight control on net investment, set at 44 million euros for 2010
• The 124% increase in profits points towards a change in the overall trend, and the average room rate rises after 7 consecutive quarters in decline
• The hotel company focuses on growth in high potential markets and will maintain its anti-crisis discipline throughout 2010 to consolidate its strengths in preparation for market recovery
• The increase in occupancy during the Easter holidays and the favourable forecasts for international tourism sustain the optimism which Sol Meliá announced on presenting results for 2009
Sol Meliá presented results today for the first quarter of 2010 showing a profit of one million euros (124 % above the same period in 2009), above market expectations, and registering revenues of 258.5 million euros compared to 266.7 million euros in the first quarter last year. EBITDA grew for the first time since the presentation of the annual results in 2007 to 40.6 million euros, growth of 3.1 % over the 39.4 million euros in 2009. The company reduced its Net Debt by 8% to 80.8 million euros compared to the first quarter of the previous year.
In line with the forecasts made by the company when presenting annual results for 2009, the travel industry shows signs of an incipient recovery, as seen in the data on international arrivals published by the World Tourism Organisation – including the first rise in arrivals to Spain for 22 months – and in the figures for the Easter holidays where improvements were seen in both city and resort hotels compared to 2009. Taken together with the positive growth in bookings in city hotels and also from tour operators over recent months, these trends point towards a better summer season for 2010.
Sol Meliá saw positive trends in both occupancy and revenue per available room (RevPAR) in the first quarter, with RevPAR growing in March (+5.1%) after 21 consecutive months of decline. The excellent performance in European city hotels, with an increase of revenues per room of 1.5%, contrasts with the slower progress of hotels in Latin America and the Caribbean which still suffer the effects of the earthquakes in Haiti on bookings in the neighbouring Dominican Republic, the Influenza A virus in Mexico, and the devaluation of the Bolívar in Venezuela. With regard to the volcanic ash, the impact on the Sol Meliá results was less than expected at around a loss of 400,000 euros.
The economic recovery in the United States, our most important feeder market for Latin America and the Caribbean makes Sol Meliá confident, nevertheless, that results will improve overall for 2010 in the region; and in particular the reactivation of hotel occupancy from the US (60% of our total guests in the region) also points towards a recovery in Sol Meliá Vacation Club.
With regard to asset rotation, the agreement in March to sell the Hotel Tryp Los Gallos in Córdoba, which will continue to be managed by the company under a 15 year lease, generated capital gains of 5.5 million euros at an EBITDA multiple of x30.2. According to Jones Lang Lasalle, hotel acquisitions on a global level have increased by 53% since the first signs were seen of greater availability of credit.
The hotel company received further recognition for its commitment to sustainability and corporate social responsibility when its membership of the socially responsible FTSE4Good-Íbex Spanish stock market index was renewed, a reward for Sol Meliá’s strategic approach to the issues. For 2010 Sol Meliá maintains a long list of commitments related to its certification as the first Biosphere Hotel Company, and has also included objectives related to sustainable development in all of the variable bonuses defined for its employees for the first time.
The creation in September 2009 of the Sol Meliá Institutional Office and Corporate Diplomacy has given a greater focus to Sustainability as a competitive advantage: contributing to the sustainable development of the communities in which we operate and creating value for all of our stakeholders, involving them through dialogue and alliances.
The Sol Meliá Vacation Club, the Spanish hotel chain’s timeshare business, continues to receive awards which enhance its reputation and demonstrates the confidence that the Sol Meliá brand adds to businesses. Sol Meliá received the RCI PINNACLE Award from the RCI Group (the biggest specialist in timeshare) for its excellent sales, while the SMVC resorts in the Dominican Republic won the Gold Crown award for their quality products and service. Three Sol Meliá resorts have also been included in “The Registry Collection”, an exclusive catalogue featuring the best resorts in the timeshare business: “The Reserve” at Paradisus Punta Cana and “The Reserve” at Paradisus Palma Real, (both in the Dominican Republic) and the Gran Meliá Palacio de Isora in Tenerife, Spain.
Human capital and management ability
In the first two years of this crisis, 2008 and 2009, Sol Meliá has shown significant discipline and management ability in the areas of revenues, costs and cash-flow, as well as in an exhaustive prevention and management of risks related to insolvency and other problems in the industry. Far from relaxing now that the first signs of improvement have been noted, the company will maintain its contingency strategy throughout 2010, a year in which the recovery is expected to begin. In the words of the Vice Chairman and CEO, Gabriel Escarrer Jaume, “our rigour and focus allow us to confront our future financial commitments with confidence and to take on projects for the future”, although also making clear that “we must administer our competitive advantage very wisely to make the company even stronger through a stage which will bring both market recovery and possible consolidation”.
The company will maintain its focus on increasing revenues with activities which in 2009 raised additional revenues of 54.6 million euros. In the first quarter this year the increased revenues from the Contingency Plan activities reached 4.3 million euros, with the provisional results for April confirming the trend of increases in RevPAR. With regard to the rationalisation of costs, the company considers that a large part of the efficiency improvements achieved in 2009 may be considered permanent, while it continues to work on reducing costs to reach its target of 8 million euros in 2010.
Although the risk of insolvency in the industry is still present, Sol Meliá continues to see no significant impact in accounts due nor in average collection periods, and maintains the strict supervision and risk management developed over the crisis period.
As the reduction in Net Debt shows, one of Sol Meliá’s priorities is to guarantee equilibrium in its balance sheet and cash-flow, to allow the company to meet its short and medium term debt repayment obligations. The company is confident it will meet its covenants due this year and affirms that this is the priority in all of the areas of the company.
Sol Meliá is particularly pleased that this great effort to make savings has not had a negative impact on the guest experience, nor service quality and guest satisfaction, nor the motivation of its more than 33,000 employees. The company links the high degree of identification of employees with the company (greater than 85%) with the results obtained in this complex period, rating Sol Meliá higher than the average performance for the industry both in Spain and abroad and allowing the company to achieve the highest brand awareness amongst hotel companies in Spain according to TNS.
Growth and diversification
After adding 20 new hotels in 2009, Sol Meliá added three more hotels with 470 rooms in the first quarter, 66% under franchise agreements and 34% under a variable lease. In line with a growth strategy based on low capital intensity, the company reports that these additions now take the portfolio to 30% of rooms are owned, 48% are under management agreements, 5% are franchises, and 17% are under lease agreements.
Sol Meliá remains focused on adding hotels which add value to its brands and also maximise opportunities for company growth and the consolidation of its balance sheet.
The company highlights the growth in the country which is once again becoming the “driver of Europe”: after the addition of the Innside Dresden, Germany is now the third biggest country in the Sol Meliá portfolio by number of hotels. With 21 hotels and more than 3,200 rooms in 12 cities, Sol Meliá now has 980 employees in Germany and handles almost a million hotel stays per year.
The growth strategy for Spain’s largest hotel chain also aims to focus on countries with the greatest potential to reduce the risk of excessive exposure to one country or region, particularly when forecasts point towards a very different rate of economic recovery in different countries and regions. A sign of this diversification is the growing weight of business generated outside Spain in company EBITDA. In 2008, 57% of EBITDA was generated outside Spain, while in 2009 this figure reached 76%. In 2009 more than two thirds of the company’s guests were not from Spain.
With regard to the outlook for 2010, Sol Meliá is relatively hopeful that there will be a gradual recovery in the industry which forecasts predict will not be adversely affected by the volcanic ash which affected the months of April and May. Although remaining prudent – based on the continuing fragility of some markets which are important for the company, and the poor visibility of the timing and extent of the recovery- the company is confident about factors such as the change in trend in international average room rates or the gradual adjustment in new hotel supply in different destinations, to continue to improve industry figures which have been so hard hit over the last 24 months.
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