Sol Meliá Achieves Net Profits Of 51.2 Million Euros In 2008
- The Majorcan hotel company faces the most challenging period of the current global crisis from a strong financial and commercial position, focused on increasing revenues and optimising efficiency in cost management and investments.
- Stagnant consumer spending in Great Britain and Spain, and a reduction in seat capacity by airlines affected company profits (-68,4%) along with the depreciation of the pound sterling and dollar, and a decrease in revenues from asset rotation.
- Sol Meliá forecasts a difficult first half of 2009, particularly in business travel, accompanied by a slowdown in the resort business, somewhat offset by hotels in the Caribbean.
Between January and December of last year Sol Meliá revenues reached 1,279 million euros, 5,3% less than the previous year, producing a net profit of 51.2 million euros, 68,4% less than 2007. EBITDA decreased by 26.5% to 256.7 million euros, while RevPAR (revenues per available room) fell by 3.2%.
The large part of the reduction in profits is due to the global economic crisis – even more intense in the last quarter of the year -, the slowdown in Spain over the summer season due to the weakness of demand in the British and Spanish markets, the depreciation of the pound sterling and the dollar, and a reduction in seat capacity by airlines.
The situation was further affected by an almost total absence of revenues from asset rotation, with 3.8 million euros from the sale of the Tryp Los Bracos in the fourth quarter compared to the 43.1 million euros achieved throughout 2007. If exchange rate differences and asset rotation figures were subtracted from results for the year, EBITDA and net profit would have only decreased by 17% and 48.4% respectively.
CONFIDENCE FROM STRENGTH
The company founded by Gabriel Escarrer Juliá in 1956 is confident of its ability to face and overcome the crisis and to be in an even stronger position once the crisis is over thanks to the work done over recent years to enhance competitive advantages such as the enormous diversification of the business, the excellent locations enjoyed by company hotels and resorts, high levels of guest satisfaction, flexibility with regard to sales channels and, more importantly, sound financial health thanks to optimum debt levels achieved through prudent financial management.
In the fourth quarter of 2008 the company renewed 100% of its lines of credit and transferred several loans to fixed rate agreements to benefit from the reductions in interest rates.
Sol Meliá continues to focus on measures implemented last summer which aim to lessen the impact of environmental factors in four key areas:
- Revenues: promotion of sales initiatives designed to raise revenues.
- Cost / Brand: focus on cost-effective actions which enhance brand equity and maintain brand standards.
- Cash flow: maintenance of measures to guarantee company financial strength.
- Management of Risk / Environment: prioritisation of activities which favour anticipation of market trends and risk management.
As far as sales activities are concerned, the company is clearly focused on compensating distribution partners depending on sales and on strategic business partnerships. Major travel wholesalers are focusing their sales activities on a reduced number of large hotel chains so that they can better manage room availability and optimise their sales commissions, a situation which is extremely favourable for a market leader such as Sol Meliá.
With the objective of seeking greater efficiency and the “customisation” of sales activities, Sol Meliá has made considerable progress in its CRM (Customer Relationship Management) programme based on a current database of 4 million identified customers.
COST AND INVESTMENT EFFICIENCY
Sol Meliá has implemented a Cost Efficiency Programme including the adaptation of its business units and corporate offices to market conditions which is expected to generate up to 35.6 million euros of savings in 2009. Amongst the most relevant measures are renegotiation of all third party contracts, a focus on brand standards that enhance cost control without any negative effect on guest satisfaction, and an approach to the management of seasonal hotels based on efficiency and critical mass.
The Sol Meliá business units which operate alongside the hotel business: Sol Meliá Vacation Club and residential leisure developments, are also adapting their management and structure to the current international situation and seeking even greater synergise with the hotel business.
Investments for 2009 are expected to be below 100 million euros, all of which will be focused on product and brand maintenance in the hotel business without any increase in company leverage.
This is fully in line with the Sol Meliá growth model over recent years. In 2008 the company signed agreements to add 13 new hotels with 4,635 rooms, of which 82% will be added under management or franchise agreements and 18% through leases. In 2009 this model has been further extended with agreements to add more hotels in Spain, Portugal and Isla Margarita with more than 1,000 rooms.
The company has also decided to postpone some of its ongoing projects which require major investments such as the first stage of the 280 room hotel under way in Salvador de Bahía (Brazil), and the Meliá and Paradisus project in Playa del Carmen (México), both of which also include Sol Meliá Vacation Club units.
OUTLOOK FOR 2009
As far as the outlook for 2009 is concerned, the global recession and uncertainty in credit markets make it difficult to foresee progress over the coming months. All indicators point to a greater impact on the business in the first half of the year, with a certain degree of improvement over the second half of the year thanks to factors which will have a gradual positive influence such as the reduction in interest rates, depreciation of the euro and the stability of oil prices.
The business travel segment is expected to decrease due to cost cutting by corporations, while leisure travel to the Spanish islands is expected to suffer from a fall in the British market due to both the economic crisis and the depreciation of the pound.
This situation may be partially offset by the relatively positive performance for major Caribbean destinations given that, for example, overall company RevPAR fell by 10% in January compared to only 3.5% in Mexico and timid growth of 0.3% in the Dominican Republic.
Finally, Sol Meliá also restated its commitment to Sustainable Development, adding its voice to those of others demanding the development of a new global economic model with a vision for the future.
In November the hotel company management approved a new Sustainability Policy which aims to incorporate environmental, social and cultural values into all of its internal processes and its relationships with stakeholders. The tourism industry is extremely sensitive to the environment, and in spite of the crisis Sol Meliá is committed to improving living conditions on our planet and the way that everyone (customers, staff, suppliers, etc ) interacts with it.
Communication Senior Manager
Phone: +34 971 22 44 64