The hotel company Sol Meliá presented financial results today for the first nine months of the year affected by a number of exceptional factors beyond the control of company management. Net profits at Sol Meliá between January and September were 80 million euros, a decrease of 41.7% over the same period in 2007. Just like the other company financial results to September, this net profit figure was affected by the weakness of the dollar against the euro. In constant euro terms total revenues would have grown by 2.6% compared to the 3% drop seen in actual results, while revenue per available room (RevPAR) would have grown by 0.8% instead of decreasing by 2.1%.
These figures were also affected by the complex international economic environment and the unremarkable tourist traffic seen in Spain due in part to the exceptional bankruptcy of two of the UK's largest tour operators and also the continuing difficulties of airlines, particularly since last summer, causing a greater impact in certain areas such as the Balearic Islands where RevPAR fell by 9.7% between January and September.
The results have also been affected by a fall in revenues from asset rotation compared to the previous year. If this factor and the exchange rate fluctuations were ignored, the figures would change significantly, with EBITDA falling by only 9.3% instead of the 18.6% drop to 220.8 million euros, and net profit would have decreased by only 20.7% .
For the forthcoming months the economic situation leads the company to make conservative forecasts and to expect a decrease in business travel due to the global economic crisis, something which will also affect booking levels in hotels in Latin America in spite of the good performance expected from the Dominican Republic. The progressive decrease in the US and Mexican markets and last minute bookings will also have a negative impact on performance in the region.
MEASURES TO COMBAT THE CRISIS
Sol Meliá continues to stand by the priorities defined in the Strategic Plan 2008-2010 highlighting a clear focus on building greater brand equity, even though its is currently more focused on the implementation of a number of measures designed to face the global crisis based on operational cost control, a reduction of financial costs and flexibility in sales.
In regard to cost control, Sol Meliá is committed to an Operational Contingency Plan which will reduce operational costs in hotels by 1%, the renegotiation of subcontracted services, analysis and, if necessary, disaffiliation of assets that do not meet brand standards, or the acceleration of the centralisation of internal processes through Hospitality Business Solutions (HBS), the company which provides services to all Sol Meliá business units, amongst other measures already foreseen in budgets being prepared for 2009.
In regard to financial costs, the recent decrease in interest rates by the European Central Bank will have a positive effect on interest payments by Sol Meliá. The company currently holds 71% of its loans under variable interest rate terms.
With regard to sales activities, Sol Meliá has the leading sales network in the Spanish hotel industry and has designed a Top-10 Sales Strategies Programme to provide the network with greater flexibility to achieve a greater presence in major markets and segments, promote higher sales through www.solmelia.com, enhance loyalty through new remuneration programmes for major partners and consumers, define a pre-sales strategy for each brand and each segment and a clear focus on generating complementary revenues.
FINANCIAL STRENGTH
Medium term forecasts expect Sol Meliá to benefit from its solid financial health compared to competitors, something which is also expected to benefit the company once the recovery in the international economy begins as it will be in a better position to exploit opportunities for growth.
The company also recalls that throughout its 52 year history it has seen many difficult situations and has always come out stronger after the recovery.
Sol Meliá's confidence in its solid internal situation is also based on the positive measures adopted by the company in recent years in several areas, particularly in regard to the financial rigour which has seen debt reduced by 350 million euros over recent years, a time when the majority of Spanish companies were increasing their indebtedness.
The company also highlights the fact that three days after presenting results for the first nine months Sol Meliá will amortise 150 million euros in convertible bonds, using a large part of the syndicated loan of 200 million euros agreed last July.
Amongst other strengths the Spanish hotel chain has developed thanks to its performance in recent years are a diversification of its business, the privileged situation of its hotels and resorts, a clear focus on guest satisfaction and greater flexibility in products sales.
A sign of the confidence in the future of the company are the increases in the stake held by the Escarrer family since October 2007 to 63.98%, after investing 46.7 million euros over the last year to purchase 5.7 million additional shares.
OPENINGS AND PROJECTS
In the third quarter the company signed agreements to add three new hotels to its portfolio: the Gran Meliá Crete, a luxury resort with 303 rooms under a management agreement and located in one of the most exclusive destinations in Crete, Agios Nikolaos, the Meliá Madeira with 220 rooms under a franchise agreement, and the Tryp Berlín Mitte, a 225-room hotel under a lease agreement.
In the first nine months of the year the company has thus signed agreements to add a total of 4,389 new rooms gradually over the coming years, of which 3,567, 81% of the total, are under management and franchise agreements, and 822 under lease agreements.
Also in the third quarter the company opened two hotels in its new luxury brands, the ME Barcelona, a stunning tower hotel which perfectly captures the avant-garde nature of Barcelona, and the Gran Meliá Palacio de Isora, inaugurated in July, which will become one of the major players in the recovery process under way in the Canary Islands in recent months. The company is also finalising preparations for the inauguration in the first quarter of 2009 of one of its most exciting projects, the Gran Meliá Shanghai.
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