Improvements in occupancy and average room rates allow an 8.9% increase in revenue per available room (RevPAR); Diversification and openings in markets such as the USA, China and United. Arab Emirates key to growth. Recovery in key feeder markets confirms a positive outlook for 2011
Sol Meliá today announced results for 2010, the third consecutive year of international economic and financial crisis. Within this context, Sol Meliá has continued to demonstrate its capacity to generate solid and sustainable results and major strength in key management parameters: revenues, costs, risk, balance sheet and liquidity, without losing sight of its strategic priorities. In 2010 the company obtained net profits of 50.1 million euros, with revenues of 1,250.7million euros (+8.9%). EBITDA reached 235 million euros, an increase of 16.5%. The positive performance of the hotel business in the fourth quarter, with an increase of 13% in RevPAR (revenue per available room) and a significant improvement in Ebitda (+29.7%) confirm the trend seen throughout the year, with highlights including growth in European cities and the Canary Islands. Sol Meliá saw a RevPAR increase of 8.9% for the year, 51% of that down to an increase in average rates. Together with a thorough cost optimisation programme in 2009 – achieving savings of which 50% are considered permanent or structural – these figures explain the positive evolution of de Sol Meliá hotel Ebitda (+15.9%).
2010 was also a key year for international growth, where greater diversification and a presence in the world’s most dynamic markets reduce exposure to regional risks. In 2010 the company inaugurated its first hotel in China, the Gran Meliá Shanghai, and added its first hotel in the USA, the Meliá Atlanta, continuing with the consistent brand growth strategy developed over recent years. Sol Meliá will continue to grow in markets in which it enjoys a competitive advantage, but is also focused on growth in other markets such as the USA, and emerging markets which are increasingly relevant in travel such as Asia and the Middle East. Sol Meliá thus believes it is essential to reach agreements with leading companies in each market, as seen in the 2010 agreement with the Wyndham Hotel Group, providing a basis for intensive cooperation and mutual growth, and the Sales, Marketing, bookings and Loyalty agreement recently reached with the leading Chinese hotel company Jin Jiang.
In 2010 the company updated its Risk Map, managing to minimise the impact of natural disasters (Haiti earthquake, volcanic ash crisis, Gulf of México oil spill, etc) and successive economic and social crisis which affected travel in 2010, and its limited exposure to North Africa and the Middle East means that the expected impact of the current social and political instability in the region (which is already generating benefits for alternative destinations such as the Canary Islands) will be positive for the company rather than negative.
Sol Meliá believes the results confirm the favourable outlook which has led the IMF to revise upwards its growth forecasts for global GNP and, in spite of the continued existence of financial tensions and excessive unemployment, the hotel company already sees recover in some of its most important feeder markets such as Germany, the UK, the Americas (both USA and Brazil, Colombia, Peru, Argentina and Chile) and also in Eastern Europe. In this complex environment Sol Meliá continued to focus on sustainability and responsible tourism, outstanding as most important landmarks for 2010 the strategic alliance with UNICEF to protect children and prevent child exploitation; and the agreement with the ONCE foundation to promote workplace integration for the disabled. The company renovated as well its inclusion in the “FTSE4Good Ibex” Spanish stock market responsible investment index.
Financial strength, key to growth
The Contingency Plan approved in 2008 involved a strategic adaptation to the needs generated by the international crisis. Amongst the levers that company management strengthened within the plan was a strong focus on financial health, meeting covenants and improving liquidity levels after a full renewal of al credit policies which expired in 2010, and also having taken out 10 new loans and mortgages for 160 million euros to maintain liquidity levels moving forward. The company also expects to retain a greater relative weight for fixed rate debt as a proportion of total debt, currently 64%, to make the most of an environment in which low interest rates still prevail.
Currently, liquidity stands at around 500 millions euros, guaranteeing short and medium term repayments which are nearly 385 million euros for 2011 and 2012. Sol Meliá expects to meet its covenants in 2011 thanks to the expected improvement in the business and the success of its asset rotation.
Expansion: additions and investment in key assets
In 2010, the strategy to enhance company brand equity continues to provide a basis for important growth, with 27 hotels in the pipeline for the next 3 years, the major under low capital-intensive formulas such as management contracts, in line with the strategy of ensuring excellence as a management company. Sol Meliá will also prioritise the premium and superior brands in its growth strategy.
By region, Sol Meliá is prioritising growth in areas in which it enjoys a competitive advantage, aware of the “boom” in Latin America and that Europe, in spite of relatively lower growth, will continue to be the most important travel destination in the world. The company is strongly committed to growth in Asia and North America, the Middle East – the Meliá Dubai will open this year – or new and exotic resort destinations such as Isla de Sal in Cabo Verde.
The presence in the United States with the recently added Meliá Atlanta kicks off a progressive increase in the presence in major US cities such as New York, Miami, Orlando and Washington, representing a potential market for increasing brand awareness and customer base in hotels in Europe and Latin America. The strategic alliance halfway through the year with the market-leading Wyndham Hotel Group to promote the growth of the TRYP, brand, raise brand awareness and generate synergies in sales and customer loyalty is also expected to help achieve the same objective.
The company has just celebrated 25 years in Asia, where it opened its first international hotel, the Meliá Bali, and is currently celebrating the first anniversary of its first and successful hotel in China, the Gran Meliá Shanghai. Growth plans for the continent are focused on partnerships with local partners to jointly develop new hotels and resorts, particularly in major city and resort destinations in China. This idea is inspired by the recent agreement signed between Sol Meliá and Jin Jiang, the leading Chinese hotel chain and one of China’s most important travel agencies, focused on enhancing mutual understanding and confidence, as well as the implementation of Jin Jiang brands in Europe and the Meliá, Gran Meliá and Innside brands in China, in addition to greater cooperation distribution and loyalty.
With regard to investments in growth, the company highlights the completion in the first half of 2011 of the Hotel ME London, with a further investment before opening– scheduled for the beginning of 2012- of 43 million British pounds. The acquisition was a great opportunity to add a very valuable asset – affected by the real estate crisis – in a key destination. The new Hotel ME London offers its owners guarantees of a high degree of profitability, as well as an authentic international “showcase” for the positioning of the cutting-edge “ME by Meliá” brand which the company aims to extend through more management agreements and Joint Ventures.
Sol Meliá is particularly pleased to announce that it is developing two exclusive five star resorts with 906 rooms in Playa del Carmen, (México). One of them, the Paradisus Esmeralda, designed for families, and the other, the Paradisus La Perla, designed for adults or couples. Scheduled to open in 2011, the hotels will represent a spectacular reintroduction of the “Paradisus” brand in México, one of the fastest growing destination and one to which Sol Meliá remains committed. The hotels will be built on a 290,000 squaremetre beach-front plot owned by Sol Meliá, with a Convention Centre for 2,000 people and 340 Sol Meliá Vacation Club units, involving an investment of 83 million dollars in 2011. The project to build mixed-use hotel and residential units on the land Sol Meliá owns in Salvador de Bahía (Brazil) has now been fully authorised and the company will analyse the development of the master plan together with real estate groups which specialise in the market, although activity may not begin in 2011.
New strategic challenges and outlook for 2011
The crisis which has affected recent years has also seen the strengthening of the competitiveness of Sol Meliá, in terms of 1) brand equity, 2) diversification and pipeline, 3) location and quality of city and resort hotels, 4) flexibility and cost structure, y 5) financial position and liquidity.
Sol Meliá faces 2011 as a year for consolidation of its achievements and preparation of the Strategic Plan 2012-2014. The priorities for this period remain the consistency and personality of the brands and internal talent management, along with consolidation of the company’s vocation as an “excellent hotel manager” and improvements in company real estate asset management. The company will increase its focus and presence in markets such as Asia, Latin America, and some of the major cities in Europe and the United States.
The business environment outlook is also more positive: 2011 has started with increases in occupancy and room rates (RevPAR in January grew by 11.3%) in both Europe and Latin America, and the uncertainty surrounding the Spanish market becomes less important as Sol Meliá continues to increase the regional diversification of its products (Spain now represents only 22% of total company Ebitda). Spanish resorts, however, will see benefits in 2011 – already evident in the Canary Islands – from the instability in competitive destinations in North Africa where Sol Meliá exposure is very limited.
The RevPAR increase for the year is estimated at between 5% and 9%, consolidating the positive trend in occupancy and rate improvements together with reduced growth in hotel supply.
