Sol Meliá announced results today for the first half of 2010, during which the company made a profit of 13,5 million euros compared to the 1.2 million euros in the same period of 2009, thus meeting market expectations after registering revenues of 581 million euros, compared to 544.9 million euros in the first half of 2009. EBITDA grew by 13% to 97 million euros compared to 85.9 in the same period in 2009.
The industry continues to show signs of recovery, such as the 4% increase in international tourist arrivals estimated by the World Tourism Organisation for the year, with Spain already showing an increase of 1.1%, or the air traffic statistics published by IATA which show traffic in May above pre-crisis levels. In June 2010, these positive trends led to increases in RevPAR (revenue per available room) of 7.4% in Europe, 6.4% in the Caribbean, and 4.7% in Spain.
By region the company highlights the fact that Europe sees reactivation in demand from international business groups while the Latin America-Caribbean region returns to normality. Nevertheless, given the continuing turbulence in global financial markets and the uncertainty about recovery in the United States and economic policy in Spain, the company remains prudent and has announced that it will continue to apply the anti-crisis measures implemented 24 months ago.
The second quarter gave Sol Meliá its first increase in Hotel Ebitda (+15.5%) after 9 quarters of decreases, and RevPAR grew by 11.9%, particularly satisfying figures bearing in mind the deficient crisis management surrounding air traffic control during the volcanic ash cloud episode which had a negative impact of around 1.8 million euros on company Ebitda.
In June, the company presented its Sustainability Report 2009, a year in which Sol Meliá consolidated its Global Sustainability Policy, the main external commitments of which include certification as a Biosphere Hotel Company, signature of the United Nations Global Compact, and a presence on the Spanish FTSE4Good Ibex stock exchange index. The most important commitment for 2010 is the introduction of cultural, social and environmental sustainability criteria in the variable bonuses of all company executives to extend responsibility for the commitments assumed by senior management.
The excellent financial results achieved by Sol Meliá and the strategy to enhance the value of its brands and levels of brand awareness support the ambitious growth strategy which, either directly or through partnerships such as the one agreed in June with the Wyndham Hotel Group, the biggest hotel group in the world, aims to continue growth in countries outside Spain through low capital intensive formulas or by investing the proceeds from the disposal of non-strategic hotel assets in products which are able to generate more profitable opportunities.
Managerial prudence and financial consistency:
Sol Meliá has used the worst two years of the crisis to reinforce its internal structure and grow through opportunities that have arisen in the market. To ensure an optimum balance between revenues and costs, meet its financial commitments, and also take on projects that will bring future growth, the company designed a rigorous contingency plan which has managed, amongst other achievements, to reduce costs by more than 80 million euros compared to the previous year, and increase revenues from extras to compensate the falling RevPAR in all markets, safeguard the balance sheet and cash-flow, and contain any impact from bad debt and other risks.
This financial prudence has also been applied to investments. After the significant investments made by the company in its renovation Programme 1999-2002 (600 m€) and also the investments made between 2006 and 2009 to adapt the 74 owned hotels to brand standards (395 m€), the limit has been set at 44 m€ for 2010, fundamentally to be invested in keeping hotels in optimum conditions. In 2009 the company invested a total of 71.3 m€.
Sol Meliá reduced its net debt compared to June 2009 by 181 million euros to the current level of 873.6m€, thanks to the mentioned reduction in investments – only 13.6 millions at the end of June – and the sale of assets, including the TRYP brand for 33.5 million euros, the TRYP Los Gallos for 10 million euros, and two minority shares in hotels in Cancun and the Canary Islands for a total of 23.9 million euros. Liquidity levels rose again in the period to 542 million euros, guaranteeing debt repayment in both the short and medium term.
Together with the better performance of the hotel business, sound financial management allows Sol Meliá to guarantee it will meet its covenants, and remain optimistic about the next review at the end of the financial year.
Growth and alliances
On 7 June, the company announced the sale of the TRYP brand for 42.5 million USD to the North American giant Wyndham Hotel Group as part of a strategic alliance which also includes agreements on international growth, reservation systems and loyalty programmes. The agreement was sealed on 30 June, and the new “TRYP by Wyndham” brand begins a new stage in which Wyndham and Sol Meliá (which does not lose ownership or management of any of the 92 TRYP hotels it brings to the agreement) will develop the brand worldwide, particularly in markets in which TRYP currently has no hotels, and especially the United States.
Up to June, the company has added, amongst others, its first hotel in Dubai, Meliá Dubai, the TRYP Condal Mar in Barcelona, the TRYP Lisbon Airport and TRYP Medellin and the Innside Frankfurt. Today the company also announced it will open a new INNSIDE hotel in Barcelona, the first for the modern brand– voted best hotel brand by the Germans – in Spain.
On a global level, Sol Meliá (solmelia.com) currently has 26 hotels pending incorporation; of the 7,289 rooms, 86% will be added under management or franchise agreements, with the remaining 14% added through lease agreements. With regard to markets and hotel types, the mid-scale and superior brands (TRYP, INNSIDE and MELIÁ) mainly grow in major European cities, particularly in the UK, France, Germany, Italy and the United States.
75% of the new hotels are in the “Premium” and “Superior” categories affecting the Gran Meliá, Paradisus, Me by Meliá, Meliá and Innside brands, which will mainly grow through joint ventures in key cities in the United States and Europe, with particular focus on London, Paris, Miami or New York, and the development of mixed-ownership formulas in “Premium” Resorts in Latin America and the Caribbean, such as the one planned in Salvador de Bahía, Brazil. In the Mediterranean and Latin American cities, the company aims to continue to grow thanks to the competitive advantage gained through its strong presence and high brand awareness.
Evaluation of strategy
Sol Meliá attributes the positive results and particularly the intense international growth – with 26 hotels currently in the pipeline – to the Strategic Plan 2008-2010, combined with an effective anti-crisis policy which far from affecting the strategy has consolidated its internal strengths and made progress in the five strategic areas even more focused: Brand Equity, Customer Relationship Management, Talent Management and Empowerment, Asset Management, and Sustainability.
The strong focus on the short-term management of revenues and costs in the contingency plan, together with the medium-term strategies mentioned previously, have allowed the company to consolidate its financial situation while also making progress in key factors behind future growth:
• Generation of synergies and internal efficiencies (80.5 m€ in savings – 50% susceptible to consolidation – in 2009)
• Maintenance and improvements in customer service and quality (around 80% guest satisfaction)
• Better customer management and loyalty policies (increase of 21% in customer registration with increasing effectiveness of campaigns, agreement with Wyndham Hotel Group to share loyalty programmes, etc.)
• Training of high-potential employees to manage the future portfolio of international hotels (77 hotels in 3 years)
• Improved positioning and commitment to Sustainability and Social Responsibility (FTSE4Good, Biosphere Hotel Company, adherence to the UN Global Compact, etc)
• Optimisation of asset management, prioritising the sale of non-strategic properties to strengthen the balance sheet and make new strategic acquisitions, fundamentally through partnerships.
In particular, Sol Meliá values the impact of its Brand Equity strategy on international growth. Pending the hotel additions ¡n the second half of the year, the company will have practically achieved the Strategic Plan objective to add 77 hotels (19,685 rooms) between 2008 and 2010. From January 2008 to June 2010 Sol Meliá has added 69 new hotels with a total of 17,684 rooms.
This high degree of achievement in an environment in which investments in acquisitions have been reduced, is attributed to the strength of the Sol Meliá brands, a consequence of the strategy mentioned previously which has meant that 75% of the new rooms are under management or franchise agreements, both low capital intensive and low risk formulas. The alliance with the Wyndham Hotel Group for the sale and development of the TRYP brand – now “TRYP by Wyndham” is another sign of the value of the brands in the market.
Outlook for the year
As already announced in the first quarter, Sol Meliá is confident that there will be a recovery in travel industry figures with positive news over the summer. Our outlook for the year has improved slightly with respect to the end of the first quarter, expecting a better summer season, and with reasons to infer that the positive trend seen in the coming months will continue into the future.
According to the current levels of leading Spanish and European tour operator bookings, the company estimates that RevPAR and occupancy for the summer will be above 2009 and will keep up the trend for the three months, allowing Sol Meliá to compensate the negative impact of the ash cloud on Spanish resort hotels, the hotels most affected by this crisis in the second quarter.
The outlook and booking levels for other segments such as Spanish city hotels and Latin America also shows a positive trend in occupancy and RevPAR, thanks to a return to normality in markets such as México – where resorts grew occupancy by 60.6% in the second quarter – and the reactivation of business travel, particularly international groups, together with the recovery in consumption – above expectations – in our feeder markets for Sol Meliá hotels in Latin America - Caribbean.
For another consecutive quarter, when presenting financial results Sol Meliá has expressed prudent optimism about the current environment based on the improvements seen in the leading indicators in the travel and tourism industry in the majority of markets and on the work done to combat the crisis over the last 24 months, which has allowed us to strengthen our finances and liquidity, putting Sol Meliá in an optimum position to emerge from the crisis even stronger than before.